Practise Case: IBM Bonds

Question 1: Daily Treasury Yield Curve Rate

Date 1 Mo 2 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
10/28/19 1.74 1.71 1.65 1.65 1.60 1.64 1.65 1.66 1.75 1.85 2.16 2.34

Question 2: Credit Rating and Prospect for IBM

IBM is currently rated A and will probably be downgraded (“Negative”) to

BBB according to Standard&Poors

Question 3: Data provided

Excel files provided

The following question are answered taking a A rate for the IBM bonds

Question 4: Time line of an IBM bond cash flow

Years 0 1 2 3 4 5 6 7 8 9 10

Coupo $105,0
n $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 0

Question 5, 6 and 7: Price of the bonds

Years 0 1 2 3 4 5 6 7 8 9 10

$105,0
Coupon $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 0
0,023 0,025
YTM 0,0224 0,023 4 0,0243 4 0,0267 0,028 0,0292 0,0305 0,0316
Price $116,39 $4,89 $4,78 $4,66 $4,54 $4,41 $4,27 $4,12 $3,97 $3,82 $76,93
Z-spread 0,21 0,37 0,53 0,67 0,81 0,93 1,05 1,16 1,26 1,35
Treasury 1,7833 1,8166
Yield 1,6 1,64 1,65 1,655 1,66 1,705 1,75 3 7 1,85
0,020 0,021 0,0232 0,024 0,0263 0,0294 0,0307
Sum 0,0181 1 8 5 7 5 0,028 3 7 0,032
Price $116,19 $4,91 $4,80 $4,69 $4,56 $4,43 $4,28 $4,12 $3,96 $3,81 $76,63
 Question 7 (Bis): The number of bonds sold and the amount of payables

Treasury Method
YTM Method
Numbers of Bonds 4295928,256 4303375,177
Payables to Bondholders $429 592 825,64 $430 337 517,66

Question 8: Same questions but if rated BBB by S&P

Years 0 1 2 3 4 5 6 7 8 9 10

$105,0
Coupon $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 $5,00 0
0,026 2 0,026 9 0,027 2 0,028 2 0,029 3 0,031 9
YTM 0,0306 0,0331 0,0344 0,0355
Price $112,83 $4,87 $4,74 $4,61 $4,47 $4,33 $4,17 $4,01 $3,85 $3,69 $74,07
Z-spread 0,585 0,752 0,907 1,054 1,189 1,315 1,431 1,539 1,638 1,729
Treasury Yield 1,7833 3 1,8166 7
1,6 1,64 1,65 1,655 1,66 1,705 1,75 1,85
0,021 9 0,023 9 0,025 6 0,027 0,028 5 0,031 8 0,0332 2 0,0345 5
Sum 09 0,0302 0,0358
Price $112,74 $4,89 $4,77 $4,64 $4,49 $4,34 $4,18 $4,02 $3,85 $3,68 $73,87

Treasury Method
YTM Method
Numbers of Bonds 4431515,816 4435099,313
Payables to Bondholders
$443 151 581,62 $443 509 931,33