Case study
The GE Capital Bond
by Professor Ian H. Giddy
New York University
You
have left the employ of the Canada Mortgage and Housing Corporation
to get a job in the real world. As a sign-up bonus, your new employer,
General Electric Capital Corporation, has given you some of its AAA
bonds with a face value of $10,000. The only caveat is that you may not
sell the bonds for 1 year.
GENERAL ELEC CAP CORP BOND
| As of 21-Nov-2005 |
| Price: | 106.68 |
| Coupon (%): | 6.125 |
| Maturity Date: | 22-Feb-2011 |
| Debt Rating: | AAA |
| Coupon Payment Frequency: | Semi-Annual |
| First Coupon Date: | 22-Aug-2001 |
| Type: | Corporate |
| Industry: | Financial |
Source: bonds.yahoo.com
Now that it's yours, you would like to identify and measure the various risks of
the bond. The duration and other measures of bond pricing and risk can
be found using the following spreadsheet:
duration-convexity.xls
Assignments:
- What is your investment worth today?
- What is the yield to maturity, duration and convexity of this bond?
- How does it compare with US Treasury bonds?
- What will happen to the price and risk of this bond if Treasury yields go up by 1%?
- What would happen to the value of your bonds if GE Capital is downgraded to AA?
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