Your boss wants to take a long $10m position in BASF credit. He asked you to look into few BASF bonds and present him a recommendation which bond to buy.

3) Do you thinkyou would like to enter into a long outright position? How can you evaluate BASF credit risk? (Consider what factors would apply to various investment horizons). Consider the pros and cons of holding these BASF bonds against those of the competitors.

4) Please calculate Altman Z-score for BASF and their peers. Is it a good measure of credit risk? Can Z-score explain the price difference between BASF and peers? Is it a good idea to hold these bonds? If so, which factors should the investors monitor for potential credit deterioration?

Outstanding Amount Ticker Name ISIN Coupon Maturity Maturity Type Announced Px Currency (3Feb2021) BASGR BASF SE XS1823502650 0.875 22-May-25 AT MATURITY 750,000,000 5/15/2018 EUR 104.744 BASGR BASF SE DE000A289DC9 0.25 5-Jun-27 CALLABLE 1,000,000,000 5/28/2020 EUR 102.167 BASGR BASF SE XS1718418103 0.875 25-Nov-27 CALLABLE 1,000,000,000 11/8/2017 EUR 106.491 BASGR BASF SE XS1823502577 1.5 22-May-30 CALLABLE 500,000,000 5/15/2018 EUR 113.636 *callable 1-3mo before maturity @100, till then Make Whole (Green bar denotes green bond of the issuer) (* you can treat all bonds at due at maturity, and ignore callability) 1) (20 points) Which of these bonds look more attractive? Please recommend to your boss which bond(s) to buy and how many. (Assume no prior position in BASF credit) 2) (15 points) What are the main risks associated with this position? How would you protect your position from the moves in interest rates. Please provide the hedge specifics (notional, maturity, direction, etc) where possible. Is it a perfect hedge? Outstanding Amount Ticker Name ISIN Coupon Maturity Maturity Type Announced Px Currency (3Feb2021) BASGR BASF SE XS1823502650 0.875 22-May-25 AT MATURITY 750,000,000 5/15/2018 EUR 104.744 BASGR BASF SE DE000A289DC9 0.25 5-Jun-27 CALLABLE 1,000,000,000 5/28/2020 EUR 102.167 BASGR BASF SE XS1718418103 0.875 25-Nov-27 CALLABLE 1,000,000,000 11/8/2017 EUR 106.491 BASGR BASF SE XS1823502577 1.5 22-May-30 CALLABLE 500,000,000 5/15/2018 EUR 113.636 *callable 1-3mo before maturity @100, till then Make Whole (Green bar denotes green bond of the issuer) (* you can treat all bonds at due at maturity, and ignore callability) 1) (20 points) Which of these bonds look more attractive? Please recommend to your boss which bond(s) to buy and how many. (Assume no prior position in BASF credit) 2) (15 points) What are the main risks associated with this position? How would you protect your position from the moves in interest rates. Please provide the hedge specifics (notional, maturity, direction, etc) where possible. Is it a perfect hedge