Problem $1$

Build a DCF model $($in excel$/$or python$)$ to value a hypothetical credit instrument with the following inputs.

i$.$ Instrument name: Security A

ii$.$ Issuer description: Issuer designs and manufactures wristwatches and timepieces for men and

women. It sells its watches through boutiques, authorized retailers, or authorized repair centers

worldwide.

iii. Origination Date: $2020-01-01$

iv$.$ Maturity Date: $2025-12-31$

v$.$ Principal Outstanding: EUR $1,000,000$

vi$.$ Interest Details:

i$.5\%$ PIK $($accrued$)$ interest rate paid annually at the end of the year.

ii$.4\%$ cash interest rate paid semi$-$annually $($Jun$-30$ and Dec$-31)$

vii. The principal will be returned at maturity and no call protection is applicable.

viii. The instrument also comes bundled with warrants. Mention at least $1$ method that could be

used to value the warrants.

ix$.$ The instrument was acquired at par at origination date.

x$.$ Value the instrument as of $2023-06-30$ by adding a $+75$bps credit risk adjustment to the origination yield.

Expected Outputs

Your solution should address the following

i$.$ Dirty price

ii$.$ Clean price $($if applicable$)$

iii. Yield to Maturity $($if applicable$)$