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Essay / Research Paper Abstract
This 4 page paper answers three questions concerning the way an investor may assess a price for a bond. The first questions consider the influences which may impact on the way a bond is valued. The second question uses those influences to price for a bond. The third section identifies a bond that may be seen as higher risk compared to a bond offered by Google, and another that may be lower risk and discusses the impact this will have on the price the investor may be willing to pay. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEbondgog.doc
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Unformatted sample text from the term paper:
The time vlaue if money is the first of these factors, considering the rates or interest and inflation in order to discount the bond in order to assess what amount
would need to be invested to day in order to gain the same return. This would allow for an assessment of a fair price of the bond. However, this
is a simple theoretical and apparently logical assessment. However, in any investment there will also a number of other unknown factors and risks which an investor is likely to take
into account when assessing the current price of a bond. The first risk is that the interest rates will change; they are unlikely to remain the same over the entire
year. These may move up of down. If the interest rates move down and the assessment has taken place at assuming a higher rate the investor will benefit, as they
paid a lower price. If the interest rate increases during the year then the investor will loose out as they calculated the return based on a lower rate. This is
the first of the unknowns. There is also the risk associated with the firm, in this case Google, will not be able o repay the bond. This is a
risk to all investors, and the level of the risk may be assessed by looking at the creditworthiness of the firm or the liquidity and capital structure of the firm.
Signs such as low liquidity and high leveraging may be interpreting by the investors as indicating a higher level of risk. Therefore, when looking at the amount that would
be paid, it is the rate of interest that will be assessed with an additional amount added in to allow for the risk (Reilly and Brown, 2008). This additional amount
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