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Final Examination

Written assignment (report) Activity brief [BCO212] – [Business Finance] Online campus

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Professor: Dr. Kanika Gupta | [email protected]

Description Part a. In Feb’2018, Amazon raised US$3.5bn by issuing 10- year bonds carrying annual coupon of 3.15%. Amazon could also have raised the same amount of funds from the equity market. What benefits does Amazon get by raising funds via bonds that they would not have received by issuing equity? Why do you think the company did not take a bank loan for the total amount raised? (40 marks) – 10 Marks each for Bonds, Loan and Equity, and 10 for conclusion.

Part b In Feb’2018, Amazon raised US$3.5bn by issuing 10- year bonds carrying annual coupon of 3.15%. The face value of the bond is $1000 and the coupon is paid every six months. i. If the bond yield at the time of issue was 3.5%, what would be the price of the bond at the time of issue? (10 marks) ii. If the bond yield at the time of issue was 3.0%, what would be the price of the bond at the time of issue? (10 marks) iii. It is said that the price of a bond is inversely proportional to the prevailing interest rates. Prove this statement by taking the case of the above bond and computing the price of the bond at the above two yields (3.0%, and 3.5%) at maturity. (20 marks)

Part c. You have 2 options to invest in – A bond paying 5% p.a. paid annually, and a bond paying 5% p.a. paid semi- annually. Which one will you choose and why? (20 Marks)

Format This activity must meet the following formatting requirements:

• Font size 12

• Double-spaced

• 2000 words

• Harvard Referencing System

• pdf only

Goal(s) Understand the bonds and stocks valuation inside business enterprises • Improve analytical and quantitative skills

Due date Date: 19th July 2021

Time: 23:59

Weight towards final grade

This activity has a weight of 50% towards the final grade.

Learning outcomes

• Learning Outcomes

• 1. analyze series of future cash flows and recommend choices for investment; 2. categorize the value of bonds as per risk, maturity, rate of return; 5. assess bonds yields within the current financial markets’ conditions; 3. analyze the different types of stocks (preferred and common), asses their value and rate of return.

Assessment criteria

The students can base their replies on wider research,

even from the internet sources, however, all

information should be appropriately referred using

Business School’s referencing style. Though student’s

quantitative analysis will be same, however,

justification, use of theory, paper structure and

background for recommendation is to be explained in

detail for which you will get higher awards.

Rubric: written assignment

Criteria Accomplished (A) Proficient (B) Partially proficient (C) Borderline (D) Fail (F)

Problem identification

The business issue has been correctly identified, with a competent and comprehensive explanation of key driving forces and considerations. Impact on company operations has been correctly identified. Thorough analysis of the issue is presented.

The student correctly identified the issue(s), taking into account a variety of environmental and contextual drivers. Key case information has been identified and analyzed.

The student correctly identified the case (issues), considering obvious environmental/contextual drivers. There is evidence of analysis, but it lacks depth.

The student correctly identified the issue(s) but analysis was weak. An absence of context – the work is basically descriptive with little analysis.

The student failed to correctly identify the issue(s); analysis was incorrect or too superficial to be of use; information was misinterpreted.

Information gathering

The student showed skill in gathering information and analyzing it for the purposes of filling the information gaps identified. Comprehensive and relevant.

Relevant information gaps were identified and additional relevant information was found to fill them. At least two different types of sources were used. The student demonstrates coherent criteria for selecting information but needs greater depth.

The student correctly identified at least one information gap and found relevant information, but which was limited in scope. Some evidence of sound criteria for selecting information but not consistent throughout. Needs expansion.

An information gap was identified and the student found additional information to fill it. However, this was limited in scope. Weak criteria for the selection of necessary information.

Information was taken at face value with no questioning of its relevance or value. Gaps in the information were not identified or were incorrect.

Conclusions The student evaluated, analyzed, synthesized all information provided to create a perceptive set of conclusions to support the decisions and solutions.

The student evaluated, analyzed and synthesized to create a conclusion(s) which support decisions and solutions.

The student reached conclusions, but they were limited and provided minimal direction for decision-making and solutions.

The conclusion was reasonable but lacked depth and would not be a basis for suitable strategy development.

The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand.

Solutions The student used problem solving techniques to make thoughtful, justified decisions about difficult and conflicting issues. A realistic solution was chosen which would provide maximum benefit to the company. Alternative solutions were explored and ruled out.

The student used problem solving techniques to make appropriate decisions about complex issues. Relevant questions were asked and answered. A realistic solution was chosen. Alternatives were identified, explored and ruled out.

The student used problem- solving techniques to make appropriate decisions about simpler issues. The solution has limited benefit but does show understanding of implications of the decision. Alternatives were mentioned but not explored.

The student used problem solving techniques to make decisions about simpler issues but disregarded more complex issues. Implications of the decision were not considered. Alternatives were not offered.

The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand.

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