The Value of a One-Year Cardinal Health Bond

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Introduction. This paper discusses the value of a one-year Cardinal Health bond. The approximate value of such a bond is determined, reflecting knowledge of time value of money, and the bond's value is discussed in relation to the operating statistics of the company. There is also discussion of competitor's similar bonds and the relative value of those compared with the Cardinal bond. 1. The price that I paid for this bond would be less than $100,000. The amount would be determined by a number of factors. The first of these is the prevailing interest rates in the economy. The inflation rate that is expected for the next year forms the baseline for the discount I would need to take on this bond. Additionally, there is the issue of the company's credit. I would need to know what the company's credit rating was, and what other bonds with the same credit rating are priced at. Cardinal Health has an 'A' rating on its debt (Yahoo Finance, 2012). A two-year corporate bond with an A rating has a yield to maturity of about 0.77%, so a one-year might be lower at 0.70%. This implies a price of around $99,300. That is around what I would expect to pay for this bond. 2. The discount rate for this bond would be 0.70%. I started with an appropriate discount rate to derive my bond purchase price, since I would not purchase a bond without finding out ahead of time what a good price should be. That rate was determined by the rating of the bond. Bond ratings are derived from a
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