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Question 1.
Procter & Gamble Co. plans to raise $200 million by issuing corporate bonds. The bonds with a
term to maturity of 10 years have an 11.5% coupon rate. Coupon is paid annually. Bond rating of
P&G is expected to rise in the future. As a financial analyst of P&G, you are asked to prepare a
report. In your report you need to estimate the additional cash proceeds that could be raised from
the new issue if the new rating of P&Gs bond were improved by one level.
Requirement
To complete this report, you need to collect relevant data from Bloomberg. Data that you may need
to download includes:
Current credit rating for P&G (use credit rating from Standard & Poors)
U.S. Daily Treasury yield curve
Yield spreads for the various bond ratings
*You may find that the yield curve you generate may not cover every year that you need for the
new bond; therefore, you need to fill these in by linearly interpolating the given yields and spreads.
For example, the four-year spot rate and spread will be the average of the three- and five-year rates.
The six-year rate and spread will be the average of the five- and seven-year rates.
Note: The sample period for all data used in Question2 Question5 is from 1/1/2013 to
1/1/2015. The frequency of data is daily.
Question 2. Finding Information about Interest Rates
Objective:
Learn how to find information about interest rates from Bloomberg.
Report:
Your report may be written as a list, but be sure to use complete sentences. You should include the
following information
1. Find two money market yields the Fed Funds rate and the 3-month T-bill rate.
2. Compare the 5-year Treasury Note rate with the 5-year Treasury Inflation-Protected
Securities TIPS rate. What does this suggest the people are expecting for inflation over the
next five years?
3. Compare the 10-year Treasury Bond rate with the Investment Grade Corporate rate. What
is the risk premium.
Report:
Companies include:
American Express Company
The Boeing Company
Cisco Systems, Inc.
Caterpillar Inc.
You should include the following information
Objective:
Learn how to find information about interest rates from Bloomberg.
Report:
You should include the following information
Objective:
Learn how to interpret information about the term structure of interest rates.
Assignment:
From an online source of information about interest rates, find the term structure
and discuss what it might mean.