E-investments Exercise (60 Marks)

a). Find 10 publicly traded companies and fill in the following information (Table 1: Issuer Level Financial Information), you should calculate the working capital and Altman Z-Score based on the information you find (27 Marks).

Here are the requirements:

Firms’ stock must be publicly traded on major stock exchange

Firms must have a credit rating score from Standard & Poor’s (Long-term issuer credit rating)

The rating scores from these 10 firms should cover a wide range of credit rating levels with the following specific requirements:

at least one firm’s rating score is at AAA level;

at least one firm’s rating score is at AA level (any of AA+, AA, AA-);

at least one firm’s rating score is at A level (any of A+, A, A-);

at least one firm’s rating score is at BBB level (any of BBB+, BBB, BBB-);

at least one firm’s rating score is at BB level (any of BB+, BB, BB-);

at least one firm’s rating score is at B level (any of B+, B, B-);

at least one firm’s rating score is at CCC level (any of CCC+, CCC, CCC-)

The last Column Altman Z-Score should be calculated based on the formula’s on page 458 in the textbook.

Working capital is the difference between current assets and current liability.

All the 10 firms should be from the same country.

b). Find one bond for each of the above 10 companies, and fill in the information in Table 2: Bond Level information. You should calculate the number of years until maturity, average yield to maturity, and Bid-ask spread (27 marks).

Here are the requirements:

All the 10 bonds should be bullet bonds (callable, puttable, extendable bonds are not allowed)

All the 10 bonds should have similar time to maturity (You cannot have one bond maturing in half year, but the other ones maturing in 10 years). You don’t need to make them have the exact same maturity, but you should try your best to find the closest matches.

The Number of years until maturity is the difference between the maturity date and the current time you obtain the bond information, rounded to one digit after the decimal point.

The average yield to maturity is the average of the bid yield to maturity and ask yield to maturity.

The bid-ask spread is the difference between ask price and bid price.

Given these two tables’ information, answer the following questions:

a). What is the relationship between Altman Z-Score and credit rating? (2 marks)

b). What is the relationship between the average yield to maturity and credit rating? (2 marks)

c). What is the relationship between the bid-ask spread and credit rating? (2 marks)

Sample Solution