Bond will allow the investor to convert capital to income

Assignment Help Financial Management

Reference no: EM131072058

Tangential is a AA+ rated company that is looking to issue bonds with a five year maturity. Their investment bank adviser has suggested that they issue a Yen 1 billion ‘high’ coupon bond which will be an attractive investment for Japanese pension funds which must pay their pension obligations from income.

The investment bank has suggested that a high coupon and redemption price of 90% of the face value will be a suitable bond structure. The following information is relevant. The current average yield on a AA+ bond is 5.7%. The maximum coupon payment could be 8%.

Show the possible cash flows for the bond and estimate the issue price. You can assume there are no issue costs.

Explain and analyze what the investment bank adviser means if he says that such a bond will allow the investor to convert capital to income.

Discuss any significant disadvantages that you would expect in issuing a high coupon bond.

If Tangential wishes to pay US dollars and not Japanese Yen, what can the company do? Illustrate and analyse your answer with diagrams showing the cash flows.

Reference no: EM131072058

Questions Cloud

Chooses to go ahead with the sponsorship : An auto-parts company is deciding whether to sponsor a racing team for a cost of $1000000. The sponsorship would last for 3 years and is expected to increase cash flows by $570000 per year. If the discount rate is 6.9%, what will be the change in the..

What type of option is embedded in the new security : What type of option is embedded in the new security? What are the major components in valuing the new security? How do you price the newly issued preferred stock? How would you evaluate the tradeoff between accepting the new preferred stock and keepi..

How much money must the company borrow : The treasurer for Chic Man Clothing must decide how much money the company needs to borrow in July. The balance sheet for June 30, 2010 is presented below: Chic Man Clothing Balance Sheet June 30, 2010 Cash $87,000 Accounts payable $550,000 Marketabl..

What is the risk premium on this stock : Morgan Markets has a beta of 1.1 The risk-free rate of return is 2.75 percent and the market rate of return is 8.80 percent. What is the risk premium on this stock?

Bond will allow the investor to convert capital to income : Tangential is a AA+ rated company that is looking to issue bonds with a five year maturity. Their investment bank adviser has suggested that they issue a Yen 1 billion ‘high’ coupon bond which will be an attractive investment for Japanese pension fun..

What is the investor''s risk aversion coefficient : Consider a risky portfolio that offers a rate of return of 15% per year with a standard deviation of 20% per year. Suppose an investor is indifferent between investing in the risky portfolio and investing in a risk free asset earning 8% per year. Wha..

Does this company have access to external capital : What is southwest airlines ability to borrow funds or raise equity. Does this company have access to external capital? "Access to target sources of external finance for Southwest Airlines?"

Find the present value of this annuity : A level continuously paying annuity pays $1,600 each month for eight years. The force of interest is δt = 2t/(t^2 + 3) where time is measured in years. Find the present value of this annuity.

What is the present value of the net cash flow evaluated : A company XYZ is considering manufacturing a product in space. The project lifetime is 10 years and has the following consecutive phases: Phase 1 (years 1 to 3): The engineering design and development requires 3 years. what is the present value of th..

User Account

All Pages