2. Bonds and their valuation Part 2 Bond valuations and yields: What do they mea

Question

2. Bonds and their valuation Part 2 Bond valuations and yields: What do they mean, and how do you derive their values? Consider the following case of investment-grade bonds issued by Procter & Gamble Co. (P&G;) in August 2011 Proctor & Gamble (NYSE: PG) | Issue Details Issue Size ($Mil) $1,000 Coupon 0.700% Maturity Date 08/15/2014 Coupon Type Fixed Callable Yes Coupon Frequency Semiannually Proctor and Gamble's total amount of debt increased from 31.9% in March 2011 to 34.2% in December 2011 mainly due to its net debt issuances to fund general corporate purposes. , What was the annual cost of the funds o P&G; raised from the $1.0 billion bonds that mature in 2014? basis points

Explanation / Answer

We are supposed to solve 4 sub parts when multiple posted
1)70 (as per coupon rate fo the bond given)
2)use rate formuale in excel to fidn this
=rate(nper,pmt,pv,fv,type)
=RATE(3*2,(100*0.7%/2),-100.1,100,0)
=0.33%
annual=0.33%*2=0.67%
3)Spread=70-19=51 basis points
4)higher, premium

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