Group Assignment

Question 1.
Procter & Gamble Co. plans to raise $200 million by issuing corporate bonds. The bonds with a
term to maturity of 10 years have an 11.5% coupon rate. Coupon is paid annually. Bond rating of
P&G is expected to rise in the future. As a financial analyst of P&G, you are asked to prepare a
report. In your report you need to estimate the additional cash proceeds that could be raised from
the new issue if the new rating of P&Gs bond were improved by one level.
Requirement
To complete this report, you need to collect relevant data from Bloomberg. Data that you may need
to download includes:
Current credit rating for P&G (use credit rating from Standard & Poors)
U.S. Daily Treasury yield curve
Yield spreads for the various bond ratings
*You may find that the yield curve you generate may not cover every year that you need for the
new bond; therefore, you need to fill these in by linearly interpolating the given yields and spreads.
For example, the four-year spot rate and spread will be the average of the three- and five-year rates.
The six-year rate and spread will be the average of the five- and seven-year rates.

Note: The sample period for all data used in Question2 Question5 is from 1/1/2013 to
1/1/2015. The frequency of data is daily.
Question 2. Finding Information about Interest Rates
Objective:
Learn how to find information about interest rates from Bloomberg.
Report:
Your report may be written as a list, but be sure to use complete sentences. You should include the
following information

1. Find two money market yields the Fed Funds rate and the 3-month T-bill rate.

2. Compare the 5-year Treasury Note rate with the 5-year Treasury Inflation-Protected
Securities TIPS rate. What does this suggest the people are expecting for inflation over the
next five years?
3. Compare the 10-year Treasury Bond rate with the Investment Grade Corporate rate. What
is the risk premium.

Question 3. Finding Information about a Stock

Objective:
Learn how to find information about stock prices from Bloomberg.

Report:
Companies include:
American Express Company
The Boeing Company
Cisco Systems, Inc.
Caterpillar Inc.
You should include the following information

1. The companys ticker symbol of the above companies.

2. Daily closing price for each company.
3. Calculate the daily returns of the stocks.
4. Calculate the volatility of the daily returns.
5. The market capitalization of the company.
6. How would you describe the behavior of the stock returns and volatilities over the
sample period?

Question 4. Finding Information about Stock Indexes

Objective:
Learn how to find information about interest rates from Bloomberg.

Report:
You should include the following information

1. Find the closing values of the S&P500, Nasdaq, Nikkei225, ASX200,

Hang Seng Index (HIS), German stock index (DAX).
2. For the S&P 500, show how to find the previous days close using both the point
change and the percentage change.
3. Of US, Japan, Australia, Hong Kong and Germany which country and region
did the best and which did the worst, explain?
4. How did the performances of the foreign stock markets compare with the
Australia stock markets?

Question 5. Finding the Current Term Structure.

Objective:
Learn how to interpret information about the term structure of interest rates.
Assignment:
From an online source of information about interest rates, find the term structure
and discuss what it might mean.

1. The following yields (US government bond):

a. 3 month
b. 6 month
c. 12 month
d. 2 year
e. 5 year
f. 10 year
g. 30 year
2. How would you describe this yield curve?
3. Provide possible explanations for its shape.
4. According to the expectations hypothesis, what is the expected one-year
interest rate next year? Calculate this using the 2 year and 12 month rates
show your work.