A
Adequate information:
Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: The security of the bond, that is, whether or not the bond has collateral.
B
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: The seniority of the bond
C
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: The presence of a sinking fund
D
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: A call provision with specified call dates and call prices.
E
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: A deferred call accompanying the above call provision.
F
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: A make-whole call provision
G
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: Any positive covenants
H
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: Any negative covenants
I
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: A conversion feature
J
Adequate information: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance the new building, she has requested Dan to help sell million in brand-new-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate. Write a message to Dan outlining the impact of each of the following bond characteristics on the bond's coupon rate. Include any pro or con aspects of each feature in your list.
To compute: A floating rate coupon
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Chapter 8 Solutions
Corporate Finance
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- To understand how bonds work and how they are priced, we have to have an understanding of what determines a bond’s price. One of the most important factors to consider when pricing bonds is the prevailing market rate of interest for bonds of similar risk in terms of duration and quality. In your response to this question, you should highlight the relationship between bond prices and interest rates and indicate what risks are considered when we price bonds. Include at least two citations that support your response.arrow_forwardThe following tutorial question serves as practice questions on TVM and Bond Valuation. (PLEASE ANSWER ALL SUBPARTS OF THE QUESTION FROM A TO H) 1. Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater, less a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. b. The value of a bond to increase if there is a/an ________ in interest rates. c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. d. As interest rate increases the value of a bond will ______________. e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. f. A premium bond sells for ____________ as maturity approaches. g. The discount bond sells for ____________ as maturity approaches. h. A bondholder with a short-term bond is exposed to ___________…arrow_forward1. Go to finance yahoo and search for bonds. Address the following about the bond that you select and bonds in general: a) Describe the different types of bonds.b) Describe the difference between stocks and bonds.c) Select a specific bond to focus on. Describe the bond and why you selected it.d) Explain the security of the bond, that is, whether the bond has collateral.e) Describe how the seniority of the bond is calculated.f) Describe the presence of a sinking fund. Does the bond you selected to fit into this category? Explain. If it does not, find one that does and describe how this impacts the bond.g) Review a bond with a call provision and explain the specified call dates and call prices.h) Review a bond with a deferred call accompanying the above call provision and explain what this means.i) What are positive covenants.? Discuss several possible positive covenants the bond company might consider.j) What are negative covenants? Also, discuss several possible negative covenants the…arrow_forward
- The coupon rate and the face value of the bond is contained in the Group of answer choices bond indenture. bond's positive covenants. the bond investor kit. bond offering statement.arrow_forwardWhy does a bond issuer would use a call feature and then discuss the investor’s pricing of a bond with a call feature?arrow_forwardA legal document that details the rights of bondholders and the issuer is called . If the legal document just described includes a sinking fund provision, is the bond considered to have more or less default risk, all else being equal? More default risk Less default risk You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table that follows: Description Type of Bond These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are not backed by any physical collateral. They are backed by the reputation and creditworthiness of the issuing company. These bonds are considered the riskiest of all corporate bonds and thus…arrow_forward
- For a standard corporate bond, when are the following characteristics of the bond determined? ······ The amount that the issuer returns to the bondholder, when the bond matures. The maturity date. The bond's market yield. The bond's market price. The price that the bondholder pays to the issuer to acquire the bond. The amounts of any interest payments. The bond's coupon rate. The dates of any interest payments. 1. 2. Fixed before the bonds are sold and does not change. Fixed when the bonds are sold and does not change. 3. Fluctuates continually.arrow_forwardRichard would like to invest on long-term debt securities, specifically bonds. Instruct Richard to go to the a. Money Market - Bond Market b. Money Market - Stock Market c. Capital Market - Bond Market d. Capital Market - Stock Marketarrow_forwardWhich of the following would NOT be listed on the face of a bond? Select one: O a. The name of the investment bankerarrow_forward
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