FIN 6301 Unit IV

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6301

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Finance

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Jan 9, 2024

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1 Unit IV journal Sean Burton Master’s Student FIN 6301 Professor Keith Wade 11/30/2023
2 Unit IV Journal For this Unit IV Journal assignment, we are choosing a publicly traded company that issues bonds. I chose to review and discuss Walmart. I will begin with a brief introduction and overview of the company. Then I will describe the key features of one of the bonds issued by Walmart and how the fonds terms and collateral can affect the bonds interest rate. Next, we will look at how a potential investor would determine the value and risk of the bond. Finally, I will describe the concept of the time value of money as it applies to Walmart’s bond offerings. Walmart Introduction Walmart Inc. is a Delaware-based corporation headquartered in Bentonville, Arkansas. Walmart is recognized for its brick-and-mortar retail stores and its online business, which operates under the moniker Walmart. The company provides a range of products including groceries, electronics, apparel, and household supplies, among others. Walmart's net worth stood at $611.3 billion as of January 31, 2023, (Walmart INC., 2023) . Walmart Bond Walmart has a bond called the Walmart Inc. Governmental Bond, which was issued on November 20, 2018. The bond possessed a monetary worth of $8.5 billion, with an interest payment of $330.4 million (Walmart INC., 2023). This bond has several notable characteristics. It has a maturity date of November 20, 2048, meaning it will reach its full term on that day. The bond also has a coupon rate of 3.250%, which is the fixed interest rate it will pay to bondholders. Additionally, it has an annual yield of 3.261% (Walmart INC., 2023), which is the overall return on investment for bondholders. The bond received an "AA" rating from Standard & Poor's and an "AA+" rating from Fitch Ratings.
3 The interest rate of a bond can be influenced by its terms and collateral. Collateral refers to the asset or property that is offered as a guarantee for the loan, ensuring the lender's protection in the event that the borrower fails to repay the loan (Fitch Group, 2023). Walmart's bond is backed by the company's assets, such as real estate and equipment, which are used as security. A higher collateral value reduces the risk for the lender, leading to a potential decrease in the interest rate. Furthermore, the interest rate of the bond can also be influenced by its specific terms, such as the maturity date and coupon rate. Increased maturity periods and elevated coupon rates can lead to higher interest rates. Investor Bond Value Determination An investor can assess the value and risk of the Walmart Inc. Governmental Bond by examining its credit rating provided by firms like Standard & Poor's and Fitch Ratings. The ratings indicate the bond's creditworthiness and the probability of default. Higher ratings correspond to reduced hazards, and lower ratings correspond to increased risks (Bringham & Ehrhardt, 2019). In addition, investors can assess the company's financial documents, such as its cash flow and debt position, to evaluate its capacity to meet interest and principal obligations on the bond. Time Value of Money The principle of the temporal value of money (TVM) is relevant to Walmart's bond offers through its coupon rate and forthcoming interest payments. The time value of money (TVM) asserts that the monetary worth undergoes alterations over time because of inflation, risk, and the opportunity cost associated with investments (Bringham & Ehrhardt, 2019). This implies that the present value of a dollar obtained in the future is lower than the present value of a dollar received
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