CIS517 Final Exam Complete Solution

CORPORATE BOND ANALYSIS

            Assignment No. 1 - Fall 2014

A.        GENERAL BOND AND INVESTOR INFORMATION

1.           3M and Fixed Rt, Ser F 1 3/8s 2016

a.                      3M is a technology company. Co.'s segments are: Industrial, providing tapes, a range of coated, non-woven and bonded abrasives, and adhesives among others; Safety and Graphics, providing personal protection products; and traffic safety and security products among others; Electronics and Energy, providing LCD computer monitors, LCD televisions, and automotive displays among others; Health Care, providing medical and surgical supplies, skin health and infection prevention products, and food safety products among others; and Consumer, providing office supply products, stationery products, and home care products among others.

b.       Fixed Rate, Series F 1.375 bond is a bond issued by 3M in late 2011 to raise 1 billion dollars. This bond has a fixed rate of 1.375% and the coupon is paid semi-annually. This bond is not convertible or callable. It’s maturity date is September 29th, 2016. This bond is rated by Moody’s as Aa2 and by Standard and Poor’s as AA-.

B.      EVALUATION OF THE CORPORATE BOND’S  UNSYSTEMATIC RISK

1.       Corporation's Ability to Repay Principal   

a.       Key Financial Ratios:

Key Financial Ratio difference between Years:

b.       Compare these results to industry standards available from published sources orpreferably compare to the industry leader (sales/revenue) [or number two (sales/revenue) in the industry if you are analyzing the industry leader] based on financial ratios from the ALADIN databases, et. al.

c.       In addition, include an evaluation of the company’s ratios, from B.1.a, over time, what is commonly referred to as trend analysis.

2.           Corporation's Ability to Pay Interest   Same procedure as in 1 above.

Note:  As per our class discussion, Standard & Poor’s Bond Guide, (both hard copy and in their database) provides information about an interest coverage ratio, and calculates this value over several years.

3.           Credit Position of the Company ( If you can, could you answer for this question)

a.       Discuss the debt-paying experience of the company. (Use the information about this company's current and historic bond ratings.)

b. Has the company ever defaulted?

c.  What is the character of the issuing corporation?

C.        EVALUATION OF THE CORPORATE BOND’S INVESTMENT RETURN AND

            SYSTEMATIC RISK

1.     Determine the Yield-To-Maturity (YTM) based on quarterly periods

Since this bond is started from August 2012, so my teacher said I need to determine the YTM based on every month, so I adjusted, the following tables which are right, please use these sources for the answers !!!)

Quarterly Periods

Current Yield

YTM

Price

31-Aug-12

1.34%

0.73%

102.56

30-Sep-12

1.34%

0.73%

102.55

31-Oct-12

1.34%

0.71%

102.60

30-Nov-12

1.34%

0.75%

102.45

31-Dec-12

1.34%

0.80%

102.26

31-Jan-13

1.35%

0.85%

102.05

28-Feb-13

1.35%

0.93%

101.79

31-Mar-13

1.34%

0.75%

102.41

30-Apr-13

1.34%

0.75%

102.41

31-May-13

1.34%

0.51%

102.58

30-Jun-13

1.35%

0.73%

101.92

31-Jul-13

1.37%

1.15%

100.65

31-Aug-13

1.36%

0.90%

101.39

30-Sep-13

1.36%

1.00%

101.11

31-Oct-13

1.35%

0.78%

101.77

30-Nov-13

1.35%

0.67%

102.09

31-Dec-13

1.35%

0.67%

102.09

31-Jan-14

1.35%

0.88%

101.48

28-Feb-14

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