Fixed Investment Management

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The yield rates are given in the table below:

GOI

SBI

DS Kulkarni

APSFC

Yield

6.75%

9.71%

21.41%

27.11%

According to the above data, the Andhra Pradesh State Financial Corporation has the best yield rate among the 4 bonds that were analysed by Fixed Investment Management. The yield rate is 27.11%. Also, the yield rate of the DS Kulkarni bond is 21.41%, which is also high. The other two bonds have very low yield.

So, as per yield data, the Andhra Pradesh State Financial Corporation bond and DS Kulkarni bond appears to be appealing and attractive. Thus, they could further look at these bonds to check for the risk profile of the bonds.

Risk Analysis

To analyse the riskiness of the bonds, the parameters considered are:

- Duration: Duration is the measure of how long it takes an investor to be repaid by the price paid for the bond.

- Volatility: Volatility gives us the change in the price of the bond for every 1% change in the 10 Year Government Treasury bill.

The duration and volatility is calculated in the table given below:

GOI

SBI

DS Kulkarni

APSFC

Duration

4.11

3.99

3.48

3.81

Modified Duration

3.85

3.64

3.31

3.36

(Volatility in %)

From the above table, it can be observed that the duration is least for DS Kulkarni bonds, i.e. 3.48 years, and it is 3.81 years for the Andhra Pradesh State Financial Corporation bond.

So, looking these two bonds majorly as they had the high yields, DS Kulkarni bonds is less risky from the duration perspective. And the Andhra Pradesh State Financial Corporation bond is bit risky than DS Kulkarni bonds as it would take more time to recover the money invested. More the time taken, higher is the riskiness.

Looking at the Volatility, DS Kulkarni has the least volatility among the four bonds, meaning less risky as compared to other bonds. It has volatility of 3.31% Also, the Andhra Pradesh State Financial Corporation bond is more or less same risky as DS Kulkarni as the volatility is 3.36%.

So, from the duration and volatility perspective it appears that DS Kulkarni is least risky and the Andhra Pradesh State Financial Corporation bond is riskier.

The below graph shows the comparative analysis of the volatility and yield rates of each of the different bonds

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[pic 3]

Now, comparing the Credit Ratings by CRISIL, DS Kulkarni bonds has a rating of BBB+, while the Andhra Pradesh State Financial Corporation bond has BB+ rating. Since, the Andhra Pradesh State Financial Corporation bond has low rating, thus riskier.

NPV Analysis

The net present value is calculated by subtracting the price paid to obtain the bond from the present value of the bond. The below table, shows the Present Value and Net Present Value of each of the four bonds:

GOI

SBI

DS Kulkarni

APSFC

Price

-105.55

-101.48

-73.5

-49.15

PV

105.49

101.51

73.80

52.34

Net PV

-0.06

0.03

0.30

3.19

The Andhra Pradesh State Financial Corporation bond has the highest Net Present Value. The Net Present Value of DS Kulkarni bond is positive; thus it is also a better investment option. But, GOI bond and SBI bond have very low Net Present Value, thus these are not good options to invest.

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Recommendation

The major criteria to choose the most suitable bond were high yield and low risk.

Thus, based on the detailed analysis on each of the bond in terms of their yield rates and riskiness, DS Kulkarni bond appears to be the best investment option for Amboli Golf Club. It has a high yield rate of 21.41% with the lowest duration of 3.48 years. Also, it has the least volatility of 3.31% meaning it has the lowest risk.

Though Andhra Pradesh State Financial Corporation bond has the highest yield among the four bonds, it is riskier. It has a credit rating of BB+, thus it is a junk bond. The DS Kulkarni Bond has a credit rating of BBB+ and thus has a moderate degree of safety regarding timely servicing of the financial obligations.

Also, comparing the Net Present Value of the bonds, the DS Kulkarni bond has a positive Net Present Value, thus it would a profitable investment opportunity for AGC.

Thus, taking every factor into consideration, the bond by DS Kulkarni Developers Limited is the best investment opportunity, and thus AGC should consider investing their money in