TRIDENT FIN301 Module 2 (Case+SLP+Discussion) Latest 2019 January Question # 00597693 Course Code : Fin301 Subject: Business Due on: 02/04/2019 Posted On: 02/04/2019 11:21 AM Tutorials: 1 Rating: 4.6/5

FIN301 Principles
of Finance

Module 2
Case

PRESENT VALUE AND BOND VALUATION

Assignment Overview

This assignment is in a different direction than your Module
1 Case in that it is mostly computational in nature. Before starting this assignment, work through
some of the examples in the background readings to make sure you understand all
of the steps involved in future value and present value, including use of
present value formulas to compute the value of a bond. Question 4 requires the use of Excel,
although you can get partial credit if you solve it instead using a calculator
and show all of your work. Go through
the videos and sample Excel spreadsheet in the background readings before
starting on Question 4. Note that while
Excel is only required for Question 4, you may also wish to use it for
Questions 1-3.

Case Assignment

Present your answers to the following problems in a Word
document, and include an Excel spreadsheet with your computations for Question
4 or any other questions that you use Excel for. Note that you will get partial
credit if you show your work even if the answers are incorrect, and Excel is
only required for Question 4 (it is greatly recommended for Questions 1-3 but
not required). Also, if you are unable to get up and running with Excel then
you can get partial credit by instead using a calculator as long as you
carefully show all of your steps in a Word document.

1. Compute
the future value for the following:

a. $2,000
after being invested for two years in a savings account with 3% interest rate

b. $5,000
after being invested for ten years in a savings account with a 1% interest rate

c. $3,500
after being invested for nine years in a savings account with an 11% interest
rate

2. Compute
the present value for the following:

a. $3,000 to
be paid in one year with a 9% discount rate

b. $3,000 to
be paid in three years with a 9% discount rate

c. $4,000
to be paid in ten years with a 5% discount rate

3. Compute
the present value for the following:

a. An
investment that will pay you $1,000 in one year, another $1,000 in two years,
and a third payment of $1,000 in three years (e.g., three payments of $1,000 to
be paid once a year for three years). The discount rate is 4%.

b. The same
three $1,000 payments as in part a) above, but with a 6% discount rate

c. An
investment that will pay you $2,000 in one year, another $1,500 in two years,
and a third payment of $3,000 in three years. The discount rate is 4%.

4. Compute
the value of the following bonds assuming a 3% discount rate (required rate of
return):

a. A
zero-coupon bond that pays $1,000 in five years

b. A bond
that pays $1,000 in five years, with five annual coupon payments of $20 each

c. What is
the coupon rate if coupon payments are $20 per year? At what discount rate
would the value of the bond be “at par” (e.g., be worth $1,000?). Explain your
reasoning.

5. This part
of the assignment is purely conceptual with no computations required. Explain
the following with references to the required readings:

a. What is
likely to happen to interest rates if the rate of inflation suddenly increases?

b. Suppose
there are two bonds each with coupon payments of $50. The first bond pays
$1,000 in five years, and the other one pays $1,000 in ten years. If interest
rates increased, would the value of the bonds increase or decrease? Which of
the two bonds would have their value change more after the increase in interest
rates? Explain your reasoning.

Assignment Expectations

Answer the assignment
questions directly.

• Stay
focused on the precise assignment questions. Do not go off on tangents or
devote a lot of space to summarizing general background materials.

• For
computational problems, make sure to show your work and explain your steps.

• For short
answer/short essay questions, make sure to reference your sources of
information with both a bibliography and in-text citations. See the Student
Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text
citations. Another resource is the “Writing Style Guide,” which is found under
“My Resources” in the TLC Portal.

FIN301 Principles
of Finance

Module 2 SLP

PRESENT VALUE AND BOND VALUATION

For your Module 2 SLP, continue your research on the four
companies that you selected for your Module 1 SLP. Whereas you focused on the
stocks of each company in Module 1, we will now be looking at the bonds of
these four companies. Do some research on credit ratings of the bonds of these
companies as well as the yields and bond prices. Specifically, write a two-page
paper presenting the following information:

1. What is
the bond ratings of each of these companies? Do a search online and see what
credit rating Standard & Poor’s or Moody’s has given these companies. What
reasons do you see for the differences in credit ratings between these
companies?

2. Go to
FINRA’s Bond Center and click on the “search” button. Then enter the ticker
symbol of the different companies to see their bond yields and maturity dates.
You can also do a Google search on the bond yields for your four companies.
Note that most companies have multiple bonds that are currently being traded.
Which bond has the longest time before maturity? The least time to maturity?
What are the bond prices and bond yields of these bonds? Discuss which of your
four companies has the greatest bond yields and which ones have the lowest bond
yields. Do these correspond well to the credit ratings that you found for these
companies?

3. Pick out
one bond from one of your four companies. Calculate the present value of this
bond using the following steps:

a. Look at
the maturity date of the bond. If the maturity date is in five years, then
assume you will get five more coupon payments before the bond matures.

b. Look at
the coupon rate for the bond and calculate what the coupon payments will be.
For example, if the coupon rate is 4.3% then the payments should be $43.

c. Take the
interest rate you get at your local bank and use this as the discount rate.
Calculate the present value of the final bond payment of $1,000 that you will
get at the maturity date, and calculate the present value of each of the
remaining coupon payments. Compare the present value you get with the current
bond price. Divide the present value by ten and see if this is similar to the price
of this bond that you see on Morningstar. Note that bond prices are quoted so a
bond price of $1,000 would be denoted as “100” or a bond price of $1,100 would
be “110”. Comparing the price to the present value you computed based on the
interest rate you get from your local bank, is the bond a good value? For
example, if you get a present value of $1,200 and the bond price is 110, then
the bond is a good value given your bank’s interest rate.

SLP Assignment Expectations

• Answer
the assignment questions directly.

• Stay
focused on the precise assignment questions. Do not go off on tangents or
devote a lot of space to summarizing general background materials.

• For
computational problems, make sure to show your work and explain your steps.

• For short
answer/short essay questions, make sure to reference your sources of
information with both a bibliography and in-text citations. See the Student
Guide to Writing a High-Quality Academic Paper, including pages 11-14 on
in-text citations. Another resource is the “Writing Style Guide,” which is
found under “My Resources” in the TLC Portal.

FIN301 Principles
of Finance

Module 2 Discussion

Microsoft Excel videos/Discussion

For the Module 1 discussion, you looked at some goofy videos
on finance. Now that we are in Module 2
and doing some more serious calculations, find some videos on Microsoft Excel
that you find useful and provide some easy-to-follow instructions. If you are new to Excel, find some videos
that help you get started with basics such as entering data and creating
formulas. If you had some experience
with Excel prior to this class, then find some videos on some Excel’s more
advanced present value functions such as PV or NPV. Note you do not need to use the PV or NPV
functions for this module, but they might come in handy for Module 4. Share the video link with your classmates,
and give a brief overview of what the video covers and what you found useful
about it. In addition to posting your
own video, take a look at a couple of videos that your classmates post and give
your own review of these videos.

Note that while Excel is most famous as a finance tool, it
is also used in many other areas of management. For example, a human resource
department might use Excel to keep track of payroll. If you have already used Excel in your workplace,
share your experiences with how you used it.
If you have not yet used Excel in your workplace, discuss whether or not
you might use it in the future.

Finally, at the end of each module, give an update on the
stock price changes for the four companies that you are writing about for your
SLP. How much is your initial $20,000
worth now?