BST156 Finance and Investment

BST156 Finance and Investment
Coursework Assignment
Submission Rules
Coursework is worth 50% of the marks for this module. Before commencing work you need to fully familiarise yourself with the coursework assessment instructions, including:
• Maximum word limit for assignments (1,500 words). This maximum word limit refers to the main text, which does not include references, tables, charts, etc.
• Font type and size to be used in your assignments (Times new roman – Size 12pt)
• Rules relating to referencing third party work (Harvard referencing style)
https://www.refme.com/uk/referencing-generator/harvard/
• Penalties for contravention of the rules relating to plagiarism
• Deadline for submission of coursework assignments (Online submission, Week 7 Thursday 10th Nov, before 2pm)
Important Notes
Before final submission, ensure that you have:
• Answered all parts of the question in sufficient depth.
•Answered the precise question as worded. Marks will not be awarded for irrelevant material.
• Used tables and charts efficiently to strengthen your answer.
• Correctly referenced all sources used in your answer.
• Checked your word count to ensure it is not too low as this might indicate that you are not answering in sufficient depth.
• Reread your answer to ensure your description of the context is not too long as marks are only allocated for answering the question.
• Reread your answer to ensure it is logically structured and that you have added value by making sufficient conclusions.
Coursework Question New Look, a fashion retailer in the UK, is to launch a £800m bond issue as it attempts to refinance towering debts accumulated under private-equity ownership. The company has borrowings of £1.1bn, equivalent to more than five times its current operating profits. The five-year bond issue, if successful, will give the new chief executive, Anders Kristiansen, more financial freedom to pursue a turnaround of the business, which has lost out in recent years to rivals such as Primark, George at Asda and H&M. The bonds issued by New Look offer an annual income of almost 9 per cent. They come with some asset security but there may not be anything left in a bankruptcy when the lessors of New Look stores will be paid first and the £800m of bonds are considered subinvestment grade. Explain the relevance of default risk in the corporate bond market and discuss the ways in which investors may identify default risk of corporate bonds.
Key References:
Books:
Bodie, Z. et al. 2014. Investments. 10th global ed. London: McGraw Hill. Chapter 14.
Brealey, R. et al. 2014. Principles of corporate finance. 11th global ed. Maidenhead: McGraw Hill Education. Chapter 23.
Journal Articles:
Altman, E.I., 1968. Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance 23, 589–609.
Ohlson, J.A., 1980. Financial ratios and the probabilistic prediction of bankruptcy. Journal of Accounting Research 18, 109-131.
Taffler, R.J., 1984. Empirical models for the monitoring of UK corporations. Journal of Banking and Finance 8, 199–227.
Chava, S., Jarrow, R.A., 2004. Bankruptcy prediction with industry effects. Review of Finance 8, 537–569.
Chen, J. and Hill, P. 2013. The impact of diverse measures of default risk on UK stock returns. Journal of Banking and Finance 37, 5118-5131.
Websites:
https://www.standardandpoors.com/en_AP/web/guest/home
https://www.moodys.com/