A bond information sheet for a Southwest Airlines is presented below. Please use

Question

A bond information sheet for a Southwest Airlines is presented below. Please use the bond sheet to answer the following questions.

c. (2 pts) What is the coupon payment for this bond?

. (3 pts) What is the current price of the bond? Is the bond selling at a discount, premium or par?

e. (2 pts) If not considering underwriting fees, how much did Walmart take home from floating this bond?

f. (3 pts) Show and explain whether this bond is currently fairly priced or not (use February 24 as the purchase date of the bond).

g. (2 pts) Given the information you have on the bond sheet, what is the dirty price of the bond? (use February 24 as the purchase date of the bond).

SOUTHWEST AIRLS CO

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Coupon Rate

2.750

%

Maturity Date

11/06/2019

Symbol

LUV4181058

CUSIP

844741BA5

Next Call Date

10/06/2019

Callable

Yes

Last Trade Price

$101.89

Last Trade Yield

2.002%

Last Trade Date

02/23/2017

US Treasury Yield

—

Trade History

Prospectus

Price/Yield Chart

·        Price Chart

·        Yield Chart

-

Zoom: 5D 1M 3M YTD 1Y 3Y 5Y 10Y Max

Price

Price $

98.00

100.00

102.00

104.00

2015

2016

2017

Credit and Rating Elements

Moody's Rating

Baa1 (07/08/2015)

Standard & Poor's Rating

BBB (11/03/2014)

Fitch Rating

BBB+ (11/22/2016)

TRACE Grade

Investment Grade

Default

—

Bankruptcy

N

Insurance

—

Mortgage Insurer

—

Pre-Refunded/Escrowed

—

Additional Description

Senior Unsecured Note

Put & Redemption Provisions

Call Date

10/06/2019

Call Price

$100.00

Call Frequency

Continuously

Put Date

—

Put Price

—

Put Frequency

—

Classification Elements

Bond Type

US Corporate Debentures

Debt Type

—

Industry Group

Industrial

Industry Sub Group

Transportation

Sub-Product Asset

CORP

Sub-Product Asset Type

Corporate Bond

State

—

Use of Proceeds

—

Security Code

—

Special Characteristics

Medium Term Note

N

Issue Elements

*dollar amount in thousands

Offering Date

11/03/2014

Dated Date

11/06/2014

First Coupon Date

05/06/2015

Original Offering*

$300,000.00

Amount Outstanding*

$300,000.00

Series

—

Issue Description

—

Project Name

—

Payment Frequency

Semi-Annual

Day Count

30/360

Form

Book Entry

Depository/Registration

DTC, Clearstream, Euroclear

Security Level

Senior

Collateral Pledge

—

Capital Purpose

—

*d Bond Elements

*dollar amount in thousands

Original Maturity Size*

300,000.00

Amount Outstanding Size*

300,000.00

Yield at Offering

2.79%

Price at Offering

$99.80

Coupon Type

Fixed

Escrow Type

ollar amount in thousands

Symbol

LUV4181058

CUSIP

844741BA5

Next Call Date

10/06/2019

Callable

Yes

Last Trade Price

$101.89

Last Trade Yield

2.002%

Last Trade Date

02/23/2017

US Treasury Yield

—

Explanation / Answer

Answer A) The coupan rate = Coupon Rate 2.750%

Answer B) Last Trade Price of bond is $101.89.

Bond is selling on premium as the current yield is 2.002% , which is less than coupon rate (2.705%)

Answer c) The fair value of bond can't be calculated from given data as, data of US Treasury Yield is notgiven , to ue in fair value calculation .

Answer d) The dirty price of a Bond = Fair value or current price + accured Interest  

As we are making valuation at 25 Feb-2017, as payment frequency is semi annual , last coupon paid in dec 2016 .

Interest Accured for 2 months , accured interest = 2.750 *2/12 = 0.4583

Dirty price = 101.89 + 0.4583 = $ 102.3483

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