Reference no: EM133184573

Questions -

Q1. BHP-Billiton Limited is to issue ECP into the London euronote market. The 90-day ECP issue has a face value of USD100 million and a yield of LIBOR plus 25 basis points. (Assume the 6-month LIBOR is 5.5% per annum). Calculate the amount raised on issue by BHP-Billiton.

Q2. Corporate bonds may be broadly categorised as domestic bonds, foreign bonds and eurobonds. What characteristics of a bond enable it to be labelled as a eurobond, as opposed to a domestic bond or a foreign bond? Define and provide examples of each of these types of bonds.

Q3. Rio Tinto Limited has decided to issue debt securities into both the euronote market and the eurobond market. The company makes the following issues:

- NIFs maturing in 180 days with a face value of USD150 million and yielding LIBOR plus 123 basis points

- Straight bonds with a face value of USD350 million, paying an annual fixed coupon of 8.00 per cent per annum and maturing in exactly seven years. Rio Tinto is issuing the bonds at a 25 basis point premium above the current market yield on similar bonds issued by other borrowers into the market.

What is the total amount of funds raised with each issue? (Show your calculations) (Note: Normally you would look at the relevant Thomson-Reuters screen to ascertain LIBOR. However, for this question, assume the 6-month LIBOR is 5.42% per annum.)

Q4. A euro bond with £100m maturity value has a 7% annual coupon and 10 years left to maturity.

i. What price will the bond sell for assuming that the 10 year yield to maturity in the market is 4%, 7% and 10% respectively? (Show your calculations)

ii. What would be you answer to part (i) if the bond only had 8 years to maturity?

iii. What does your answer to parts (i) and (ii) tell you about the relationship of bond prices, term to maturity and changes in bond yields?