To Do

$1$

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$$ Retrieve current information on the most recent debt issuance by your shadow firm. Several sites are available, including Standard & Poor

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s home page at www

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standardandpoors.com. Alternatively, you can use the bond screener tool at Yahoo! Finance

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finance

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yahoo.com

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bonds

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$2$

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$$ Conduct a search for ratings on your corporation. Most likely you will find several ratings if your firm has issued multiple debt instruments. Note not only the rating but also the interest rate and yield to maturity of the most recently issued debt.

$3$

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$$ Using the current rating on your shadow company

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s most recent debt and a current quote on comparable Treasuries, estimate the risk premium inherent in the difference between the rates on the most recently issued debt and the risk

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free Treasury.

$4$

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$$ Let

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s use the debt rating on your shadow firm to borrow money for your fictitious firm. Beyond determining the rate, you must decide on an appropriate use for the funds. In other words, you must design an investment project that makes sense in the context of your fictitious firm. What is the purpose of the investment? What are the returns expected from the investment? Essentially, you should design and defend this investment. Show how this bond

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s valuation will change given differing assumptions on required return. In other words, what is likely to happen to the bond

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s valuation if market rates rise

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or fall

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$$following the issuance of this debt?