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An up-and-coming staffer at a small family foundation was considering whether to recommend a corporate bond investment to the foundation's investment committee. Her exploration was inspired by an article that identified some attractive corporate bond investments, and she was examining the merits of specific bond issues from Allegiant Travel, GameStop, and Western Union. Information is provided that would support a variety of bond pricing analyses, with a focus on uncovering possible mispricing and the drivers of that mispricing.
1) Introduce bond pricing analytics, such as calculating the yield to maturity (YTM) and bond prices. 2) Introduce bond ratings and credit spreads. This case can also be used to introduce risk/return relations and how market return benchmarks might be established. 3) Explore concepts related to market efficiency. The bond context is particularly attractive since mispricing can be explored in both returns and prices. 4) Build an understanding of the drivers of price sensitivities. 5) Build familiarity with the use of net present value (NPV) and internal rate of return (IRR) tools in a pricing context and explore the differences between NPV and IRR recommendations in the face of capital constraints.