Wells Fargo (WFC 5.625 17)
Report by: Xi Chang Wang, Michael Nisyriou, Hua-Chih Kao
Date of data collection: Saturday, February 7, 2009
Trade date: Monday, February 9, 2009
Date of Report: Sunday, February 21, 2009
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Community
Ask the community
Ask the community for help and clear up your study doubts
University Rankings
Discover the best universities in your country according to Docsity users
Free resources
Our save-the-student-ebooks!
Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors
An analysis of a wells fargo bond with a coupon rate of 5.625% and maturity date on december 11, 2017. The report includes the calculation of the bond's price, yield, and cash flows, as well as an assessment of its investment value based on required return and yield to maturity.
Typology: Exams
Pre 2010
1 / 11
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Wells Fargo Bond Valuation Report and more Exams Investment Theory in PDF only on Docsity!
Wells Fargo (WFC 5.625 17)
Report by: Xi Chang Wang, Michael Nisyriou, Hua-Chih Kao Date of data collection: Saturday, February 7, 2009 Trade date: Monday, February 9, 2009 Date of Report: Sunday, February 21, 2009
I: Wells Fargo 5.625% 17 Bonds provide the borrower with external funds to finance long-term investment. From the Wells Fargo bond - data collection, its coupon is 5.625% and the maturity is on December 11,
- It was issued on December 10, 2007. From the collected data table, the current quote is 100.57 and the dollar amount issued or authorized and outstanding is $3,000,000,000. Then according to the formula of bond price, it can be calculated directly that the 5.625% coupon bond has a price of $1,005.70. Also from the above data, the current market value of issue is determined by the quote and the amount outstanding, so it is $301,710,000,000. The current yield is the coupon rate 5.625% as a percent of quote 100.57 which is 5.593%. The bond is not callable which is observed from the table of Bond Data. II: Valuation A: Estimates and Assumptions
- Current yield (CY) : The current yield is the coupon rate 5.625% as a percent of quote 100. which is 5.593%. This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect if he purchased the bond and held it for a year.
- Dollar Price (P) : Percentage of par, or face value, that a bond is quoted at. In this case, February 9, 2009 is the trade date and the settlement date is February 12, 2009 which is the trade date plus three days. The quote is 100.57 and $1,000 par value, so the dollar price of bond is $ 1 ,005.70.
- Coupon payment : The coupon payment is the amount of interest paid per year expressed as a percentage of the face value of the bond (number). It is the interest rate that a bond issuer pays to a bondholder. Most bonds in the U.S. pay interest on a regular semi-annual basis. In this case, the
shows that the number of semi-annual periods to maturity is 18. So, the dollar value is $1,051. and by trial and error, the annual yield to maturity is 5.409% and the semi-annual yield to maturity for the bond is 2.705%. The dollar value is known as $1,051.81. The current dollar value is $36.58 which is based on the dollar value and the investment $1,015.23. The bond is acceptable, because the dollar value is greater than the initial outflow making this a profitable investment. From the first paragraph, the required return is known as 4.906% and the semi-annual yield to maturity is 2.705%, so the annual internal rate of return becomes 5.409%. This bond can be accepted because the internal rate of return 5.409% is greater than the required return 4.906%. It proves that this investment is profitable also. Recommendation : I think it is a STRONG BUY bond. In the dollar value decision, the dollar value is greater than the present value. In the percent return decision, the expected return is greater than the required return. These two decisions present the same results which are acceptable and profitable.
APPENDIX:
Bond data:
WELLS FARGO & CO NEW
As of 7-Feb- OVERVIEW Price: 100. Coupon (%): 5. Maturity Date: 11-Dec- Yield to Maturity (%): 5. Current Yield (%): 5. Fitch Ratings: AA Coupon Payment Frequency: Semi-Annual First Coupon Date: 11-Jun- Type: Corporate Callable: No OFFERING INFORMATION Quantity Available: 250 Minimum Trade Qty: 10 Dated Date: 10-Dec- Settlement Date: 12-Feb- Source: http://reports.finance.yahoo.com/z2?ce=4915245144541515117252&q=b%3d1%26is %3dwells%20fargo%26so%3dd Bond description:
Corporate Bonds Maturity Yield Yesterday Last Week Last Month 5yr AA 4.33 4.17 4.54 3. 5yr A 5.33 5.05 5.11 5. 10yr AAA 5.64 5.53 5.16 4. 10yr AA 4.65 4.58 5.35 4. 10yr A 6.15 6.18 6.19 5. 20yr AAA 6.21 6.33 6.00 5. 20yr AA 5.69 5.70 5.65 5. 20yr A 6.38 6.50 6.18 5. Source: http://finance.yahoo.com/bonds/composite_bond_rates Spreadsheet : FIN 3312 Bond
analysis Spring 2009 Step 1 Name Wells Fargo & CO NEW (WFC) Coupon 5.625% Maturity date 11-Dec- Collection Date 7-Feb- Saturday for Friday, February 6 closing prices Trade date 9-Feb-09 Monday Settlement date 12-Feb- Coupon Dates 11-Jun- 11-Dec- Rating AA Quote 100.57% Par $1,000. Frequency 2 Step 2 Current yield 5.593% Dollar price $1,005. Step 4 per period coupon $28. Step 5 accrued interest: coupon period 11-Dec-08 10-Jun-09 180 accrued period 11-Dec-08 11-Feb- Month Count dec 20 jan 30 feb 11 total 61 Accrued interest $9. Step 6 Total investment $1,015. Step 7 Cash flows: Date CF 12-Feb-09 ($1,015.23)
Adjusts or risk class 5.221% 2.611% SA estimate Step 9 $V $1,028. $npv $13. Acceptable YES Step 10 sa irr 2.705% annual IRR 5.409% acceptable YES Blank Page spreadsheet (-2): D83 label is incorrect
E83: incorrectly used 10-year AA yield (D75) as base instead of 5-year AA yield in D71. This is my error in comments on draft. The maturity adjustment of 4 years is correct, but 4-year adjustment should be added to 5-year base to estimate 9-year required return -2 D86,D87: no risk class adjustment needed since this is an AA-rated bond word document (-14): -1 update the date on the cover -1 incorrect MV of issue = $3 billion * 100.57% = $3,017,100,000; include par value in description (this was included in draft) -1 provide $par in coupon payment explanation and sa $ coupon in accrued interest section. These values included in draft, but eliminated when you eliminated the equations. The intent was to remove the equations, not the inputs to the equations -1 last sentence of cash inflows is not relevant since dollar amounts occur at different time periods. It does not control for time value
- 4 required return explanation does not agree with spreadsheet that used 10-year AA base and had an incorrect risk adjustment. Explanation in write-up MUST match what is in spreadsheet; final estimate of required return does not agree with 5.221% in spreadsheet -1 mixed inputs and results in first paragraph of valuation section -2 in the second paragraph, clearly indicate which of the inputs in the first paragraph are used to determine $V, then provide the results. In the third paragraph, clearly indicate which inputs used to determine ytm, then provide results -2 incorrect $V which should = $1,028.72 and r = 5.221% -1 dollar value and present value are the same thing. Comparison is $V to invoice price. Povide numbers used to justify recommendation spell out months grade: 84 – 10 = 74 10 points returned if ungraded word document posted on bond analysis discussion board by the end of the day on Wednesday, March 11