Compute Bond Valuation
Make a model that will help you price a bond in each of the following situations:
- Bond at Par
- Premium Bond
- Discount Bond
For the sake of this exercise use 6% as the coupon rate, five years as the maturity, annual interest payments and a current rate of interest at 8% for discount bond and 3% for Premium bond.
Part 2 - Choose a stock for a publicly traded company and build a valuation model - use the CAPM & or Dividend discount model
The paper should focus on how value is determined for your bonds at different states (par, discount and premium), how the model reflects all the necessary inputs and outputs, how the particular company you choose is valued compared to the CAPM or DDM and as always how does your valuation model work, what are the limitations, etc.
You will be graded as follows:
1. Application(s) of course material in building model
2.Explanation and definition of financial principles involved
3. Detailed assumptions that model is built upon and correct calculation of model components
4. Lessons Learned and Observations from model