Chapter Five: Bond Valuation

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Chapter Five: Bond Valuation

Using United Continental Holdings, Inc. my chosen publicly traded company and estimate approximately the required rate of return for the bond (15 or 20-year bond) of that company. 
Please note that required rate of return is the same as the yield to maturity of the bond. This question is very simple. 
You need to find the bond rating of your company and then find the yield corresponding to that rating at today’s date. 

Step 1: you need to find out the rating of the bond of your company. You can find rating from Morningstar.com or Moody’s, Standard and Poor or

http://www.fitchibca.com/  (Fitch, in the search type your company and get the rating)  

Note: for BB or lower bond rating you need to Google to get the bond’s rating. 

For example, for BB I Goggled and got this: https://research.stlouisfed.org/fred2/series/BAMLH0A1HYBBEY/

Therefore on the day of my search, from above I can say the approximate yield for BB rating is 5.64 %.

Below are also helpful for finding corporate rates:

https://www.quandl.com/data/ML/BBY-US-High-Yield-BB-Corporate-Bond-Index-Yield

http://screener.finance.yahoo.com/bonds.html

https://www.morningstar.com/

Assumue I am looking for Yield for J. P. Morgan (GPM).

First I found that GPM has a rating of A.

And if you find from Morningstar the rates for A are:

10-Year A = 3.72 %

20 – Year A = 4.44

We conclude that the 10-year GPM yield is 3.72 %

And 20-year yield for GPM yield is approximately 4.44 %

And a 15-Year GPM yield = (3.72+4.44)/2 = 4.06 %

Chapter 6: Risk & Return

All students should answer questions 1,2,3, 4 and 5.

Using United Continental Holdings, Inc. my chosen publicly traded company. Go to yahoo.com and download five years of the monthly prices of the stock that you have chosen. 
Also download 5 years of monthly data for the S&P 500 prices (SPY) for the same period into your Excel spreadsheet. 

1.     Estimate the monthly return of the stock and the S&P 500. 

2.     Estimate average monthly return for both the stock and the S&P500. (Average of 5 years monthly returns of step 1)

3.     Estimate the standard deviation of monthly returns of the stock and the S&P500 (SPY) over the past 5 years.

4.     Compare total risk of your stock and S&P500. In addition, compare the market risk of your stock & SPY.

5.     Compare the risk-return trade off of your stock and S&P500 (SPY). (Hint: standard deviation of returns is a measure of total risk, whereas beta is a measure of market risk). 

Presentation of the results:

In the discussion window provide all your answers and the attach your Excel file ti support your answers.