Analysis Of The Bond Issued By Dynegy Inc.

Even though these products are issued as long-term securities, they have many of the same features as traditional short-term ones. These debt products are both callable and puttable which gives the issuer as well as the investor flexibility. The call feature allows the issuer to buy back the bond. For issuers who are not sure how long they will need funds, they can get out of the agreement by calling the bond. Same goes for the investor; they can exercise the put option and receive their money back. In order to make these products more liquid, investment banks are used as remarketing agents. These agents resell the bonds at new rates to other investors. However, there is a cap on how high the rates on the bonds can be reissued at in order to limit the coupon payments. These variable rate debts also track the JJ Kenny index. The JJ Kenny index is an index similar to the S&P 500 but for municipal bonds. Also, a synthetic fixed rate debt can be created from combining a variable rate debt and a SWAP. Given the two proposals, the state is faced with three forms of debt. The first form is a fixed rate option that would provide the state with 20 year serial issued bonds with fixed

If the Company is unable to successfully manage its exposure to variable interest rates, its

= 299.629. Notice, that the value of the firm with debt overhang is lower than the same problem without debt overhang in part (e). (h) Suppose the firm were to hedge. Would equity holders take the gamble and what would be the value of the firm? (10 points) Answer: If the firm were to hedge by selling gold in a forward contract, it would get a sure cash flow of $350. Then it would not not take the gamble, because even if it lost, it could still make the debt payment of 250 · (1.05) = 262.5 and taxes of .4(50 − 250 · .05) = 15 (we assume the debt is safe, and therefore has a yield of 0.05, and verify that it can make the payment).

There is no doubt that the contribution of each of the group members is equal.

The purpose of this paper is to recommend Jack to long the Comerica Incorporated (CMA) stock. In this paper we explain how banks operate and present a small back ground on the issue Comerica is facing. Then we more on to financial statements analysis of CMA, which does not present a very strong outlook of the company, but because of the financial crisis, whole industry is experiencing financial stress. Next, our valuation methods show that CMA is undervalued relative to its peers, and hence is a good company to invest in.

Question 1 Performance Evaluation Calculation Discursive 20% 80% Question 2 Dividend Valuation Model 45% 55% Question 3 Option strategies Straddles 80% 20% Question 4 Duration and convexity –Price – yield relationship 30% 70% Question 5 Option and Futures -mixed N/A 100% Question 6 CAPM 40% 60%

Despite Target’s problematic year in 2013 that consisted of a failed expansion into Canada and data breach, we regard the company to be a strong competitor in the industry as shown in the years prior to 2013. One of Target’s biggest competitors in the industry is Costco. Although both firms have similar capital structures, Costco is a more solvent company, as it has a higher current ratio, quick ratio, interest coverage ratio, receivables turnover ratio, and is therefore more comfortable in liquidizing its assets to meet obligations. Costco may be a good investment for a creditor who would like to loan money to company with a greater safety margin. Not only is Costco a more solvent company but it’s more profitable as well, outperforming Target in terms of its ROE, ROA, and EPS ratios. We regard Costco as a company with strong growth potential and therefore we advise stockholders to accumulate shares in Costco even though the market price of Costco’s stock is higher than Target’s. For a stockholder who currently possesses shares of Target, we suggest selling the shares to purchase stocks of Costco.

Comparing each bond’s theoretical yield and price to its actual yield and price, we find that both bonds are underpriced. However, this alone is insufficient to conclude that an arbitrage opportunity exists, since our calculated theoretical prices ignore the effects of liquidity premium. As, in this exercise, we are unable to calculate what the true liquidity premium for each bond should be, we consequently do not have a true price for each bond to compare with and ascertain whether each bond is underpriced (ie. both the theoretical and actual prices may not be the true price). Nonetheless, we have calculated the implied liquidity premium for each bond as the difference between the theoretical yield and actual yield (see Table 1 above).

General Assumption. We assumed that Wackenhut is comparable to Pinkerton, and therefore that Wackenhut’s asset beta reflects that of Pinkerton. Additionally, we assumed that Pinkerton’s bond rating is A. As such, we assumed a debt service ratio for

Landry’s Debt to Asset ratio also increased from year 2002 to 2003. In 2002 Landry had a debt to asset ratio of 0.39. In 2003 Landry’s debt to asset ratio increased to 0.45. While both numbers are acceptable and considerably low, the increase from 2002 to 2003 could influence potential investors to not invest in Landry’s stock. This increase also suggests that Landry’s debt also increased from 2002 to 2003. Overall, while there was a slight increase from 2002 to 2003 Landry’s still had a good debt to asset ratio. We think that a contributing factor to the debt

This case raises many interesting questions concerning the record setting issuance of corporate debt by WorldCom, Inc. (“WorldCom”). Both the surprisingly voluminous structure of the proposed issuance and the foreboding macro-economic climate in which it was slated spark concerns over the risk and cost of the move. One of the first questions that must be addressed is whether WorldCom’s timing was appropriate. Next, the company’s choice of structure for the bond issuance must be analyzed. Finally, the cost of issuing each tranche of debt must be estimated in order to determine how much WorldCom is actually giving up to achieve the $6 billion in funds.

When comparing the very similar payoff diagrams above, we realize that Bio-Electro Systems has the ability to issue debt. It shows us also that if the asset value is low, then the debt will also be paid-off low. If and only if the debt is completely paid-ff does the equity show any value. In reality, Bio-Electro systems can actually issue debt to its investors. Additionally, if the project to develop their technologies ultimately fails only Bio-Electro Systems and its associated investors bear the costs, with no influence financially on ALZA. However, there must be potential benefits for both ALZA and investors of Bio-Electro Systems. For investors, what makes the deal attractive is the warrant to call ALZA stock at $30 per share. On ALZA's side of the deal, their benefits are immense. As time passes and ALZA does not exercise its call option on Bio-Electro systems, the strike

In order to maintain its credit rating, Diageo’s Treasury team recommends an interest coverage of 5x to 8x, but the simulation-based model calculated an optimal interest coverage.  Figure 2 shows minimal cost corresponding with an interest coverage of approximately 4.2.  Shown in the gray bars, the cost of taxes paid decreases as EBIT/Interest

I lived in apartments pretty much my whole life, I created bonds with many other kids in my area. They all had different personalities and stories about themselves, soon enough I learned to relate to many people despite myself not having the exact same economic and living conditions as them. Since many families typically live in apartments as a temporary home, all the children that I had friendships with eventually moved away. This made me cherish my friends and the others around me more, even if we were together only for a short period of time. Before I knew it, I started to become more introverted and I was more comforted remaining friends with the same people I have known for years other than trying to create new friendships. I believe this

Merton (1974) applied the option pricing method developed by Black and Scholes (1973) to the valuation of a leveraged firm and relates the risk of default to the capital structure of the company. According to this model, “The firm’s equity can be seen as a European call option on the firm’s assets with a strike price equal to the book value of the firm’s liabilities. The option like property of the firm’s equity follows from the absolute priority rule with respect to which the shareholders can be seen as residual claimants with limited liability. This limited liability gives the shareholders the right but not the obligation to pay off the debt holders and to take over the remaining assets of the firm.”