Corporate Finance Analyst Of The Investment Bank

857 Words Nov 27th, 2014 4 Pages
Introduction:
The corporate finance analyst of the investment bank is required to compute the fair price of the bond and to estimate the number of bond issuing. The computation is based on the yield to maturity, which measures the return that an investor would expect to receive by holding a bond until maturity.

The Yield Curve, also known as term structure of interest rate, is a commonly used financial tool that tracks the relation between the yields and the time to maturity of a bond. Estimating the yield on a non-currently traded bond and identifying mispriced bonds are the purposes of using the yield curve.It could, furthermore, be used to forecast future performance of the yield on a bond. (Harris, 2014) The yield curve could be fitted to construct the systematic relationship between maturity and yields whereby the third - order polynomial approach. Thus, the analyst could compute the estimated yield to maturity and in turns to get the fair price of the bond.

Methodology:
The details for A - rated bonds issued by US companies, were provided. However, for the market yields were discrete and the time to maturity range of these bonds might not be available to the purpose of valuating the required bond price. This was because during the times that the market data existed, the cash flows of the required issuing bond might not occur. (Bilhastre, 2009) Thus, the yield curve was introduced to determine the particular yield to maturity that was required for valuation…
Open Document