Two firms issue bonds with the characteristics

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Reference no: EM131316632

Assume that two firms issue bonds with the following characteristics. Both bonds are issued at par:

ABC Bonds XYZ Bonds

Issue Size $1.2 billion $150 Million

Maturity 10 Years*** 20 Years

Coupon 9% 10%

Collateral First Mortgage General Debenture

Callable Not callable In 10 Years

Call Price None 110

Sinking Fund None Starting in 5 years.

***Bond is extendable at the discretion of the bondholder for an addional 10 years

Ignoring credit quality, identify four features of these issues that might account for the lower coupon on the ABC debt. Explain.

Reference no: EM131316632

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