Explain the role of indentures and protective covenants

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Reference no: EM131583654

Raytheon Inc decided to issue bonds worth $20 million.

a. Their investment banker has told them that they can issue 15 year bonds paying 10% coupon interest. If the market demands 8% yield-to-maturity, what will be the price of a $1,000 face value bond?

b. What price will they receive for the bond if they increase the maturity to 20 years and make the coupon payments semi-annual?

c. If they instead opt for a bank loan of $20m, they will receive an amortizing loan for 10 years at a rate of 16%. What will be their yearly payments? What is the principal balance at the end of year 3? What is the total interest and principal paid over the three years?

d. Explain the role of indentures and protective covenants when companies issue bonds. Be brief.

Reference no: EM131583654

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