Current yields for treasury bond, Financial Management

Assignment Help:

ACT presently is all-equity financed. This reflects the stance of the former CEO, a dominant personality who stated repeatedly: "I don't want us to be in thrall to the demands of the banks". However, since appointment of a new chief, change is in the wind and the new CEO is obviously thinking about use of debt to augment the present equity finance. In this regard, the CEO has sent you an email that has just reached your inbox, containing the following points:

a) I am aware that ACT is too small to obtain a bond rating, but in 2010 the Federal budget announced plans for a new scheme that will enable small bond issues (at least $50 million) to be listed on the ASX. What requirements would we have to satisfy in order to qualify for listing?

b) If we made an issue with a face value of $50 million for 5 years, what would be the approximate yield required by investors? My friend, who works for PIMCO (Australia), has told me that we would have to offer about 2.5% p.a. above the yield on Commonwealth Treasury Bonds.

[Assume that the bonds would be issued at par, with half-yearly coupons]

c) Pimco has also advised me that there would be issue costs of about 2% of the face value. What impact would that have on an issue?

d) I have heard mention of a 'discount bond'. Would we benefit from this for our bonds? Can you show me how this works?

e) I have seen in recent times that some of the big Aussie banks issued covered bonds, apparently at attractive yields. What are they and are they suitable for us?

To answer the CEO's email, you have researched the current yields for T-bonds, which include the following observations:

maturity

yield

1 year

5.8%

3 years

5.9%

5 years

6.1%

10 years

6.3%

Required:

Write a brief response to the CEO's email, addressing points a) to e).


Related Discussions:- Current yields for treasury bond

What is the meaning of statement- earn out arrangements, What is the meanin...

What is the meaning of statement- Earn out arrangements These arrangements take place during acquisition of another company. Parent company agrees to pay additional money if

Operation management, Select a business with which you are familiar and ide...

Select a business with which you are familiar and identify examples of customers using search, experience, and credence quality to evaluate the good or service

Operating cyle, discuss the applicabilty of the operating cycle in a vegeta...

discuss the applicabilty of the operating cycle in a vegetable growing business

Financial control, Internal capital rationing is used by firms for exercisi...

Internal capital rationing is used by firms for exercising financial control. How does a firm achieve this?

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Valuation of bonds and shares, three years ago, SSSG Ltd. issued 10 years $...

three years ago, SSSG Ltd. issued 10 years $1000 bonds with a 7% coupon rate paid semi-annually, at par value. the market currently requires a 9% yield. what was the price of bond

What is percentage of sales method, Q. What is Percentage of Sales Method? ...

Q. What is Percentage of Sales Method? Percentage of Sales Method: - Under this process certain key ratios based on past year's information are established. These ratios is abl

What does it mean if this value were zero, What does it mean when we say th...

What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1? Correlation

Finance charges on credit card, Jack needs to borrow $1,000 for the next ye...

Jack needs to borrow $1,000 for the next year. Bank South will give him the loan at 9 percent. Suncoast bank will give him the loan at 7 percent with a $50 loan origination fee. Fi

Components of a callable bond, A callable bond is the sale of a call ...

A callable bond is the sale of a call option by the investor to the issuer as it allows the issuer to repurchase the bond from the time it becomes callable until

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd