Short answer questions: 1. An international bank loaned money to an emerging country a few years ago. Because of the nonpayment of interest due on this loan, the bank is now negotiating with the borrower to exchange the loan for Brady bonds. The Brady bonds that would be issued would be either par bonds or discount bonds with the same time to maturity. a. Would both types of bonds, par and discount provide debt reduction to the emerging country? Both par bonds and discount bonds could be exchanged for the amount of the existing debt which would reduce the country’s debt. The par bond could “be exchanged dollar for dollar for existing debt” (Solnik & McLeavey, 2013, p. 270). However, the discount bond would replace a smaller part of the …show more content…
303). Subsequently issued bonds after the drop in yen bonds, in the short-term, will probably be set with lower coupon rates making the fixed terms of the already issued dual-currency bond valuable. b. The dollar drops in value relative to the yen The value of the bond will decrease if the dollar drops. The depreciation in the currency that the bond will pay the principal in makes the bond less valuable to investors. c. The market interest rate on dollar bonds drops significantly 3. A european corporation has issued bonds with a par value of Sfr 1,000 and an annual coupon of 5 percent. The last coupon on these bonds was paid four months ago, and their current clean price is 90 percent. a. If these bonds are international bonds, what is their full price? Full Price = 90% clean price + 5% coupon rate (120 days since last coupon payment/ 360 days in the year for annual bond) Full Price = 0.90 + 0.05(120/360) = 0.9166 Full price is 91.67% b. Would your answer to part a be different if the bonds were not international bonds, but were issued in the Swiss domestic bond market? The answer would not change because the 30/360 count “is used in Germany, Scandanavia, Switzerland, and the Netherlands” (Solnik & McLeavey, 2013, p. 273). 4. Consider a bond issued at par. The annual coupon is 8 percent and frequency of coupon is semiannual. How would the YTM of this bond be reported in most of the European markets? 8% coupon/2 times per
b. What would be the value of each bond if they had annual coupon payments?
(d) $1 billion 10 year debenture @ 7.5% with 18.18 warrants at $ 55 exercisable until 1988.
Inflation erodes the purchasing power of a bond 's future cash flows. A rise in inflation will cause investors to demand higher yields to compensate for inflation rate risk. Also, prices will tend to drop because the bond will be paying interest with less purchasing power.
The bonds can be issues with fixed interest or variable rate interest, each of which has its advantages and there disadvantages.
* b.Assume the firm’s stock now sells for $20 per share. The company wants to sell some 20-year, $1,000 par value bonds with interest paid annually. Each bond will have attached 50 warrants, each exercisable into 1 share of stock at an exercise price of $25. The firm’s straight bonds yield 12%. Assume that each warrant will have a market value of $3 when the stock sells at $20. What coupon interest rate, and dollar coupon, must the company set on the bonds with warrants if they are to clear the market? (Hint: The convertible bond should have an initial price of $1,000.)
1(a) Regular Treasury bonds are purchased at face value in the beginning or an adjusted price prior maturity. And in every period, normally annul or semiannual, investor will receive a coupon as an interest and at the maturity a principal plus coupon.
Part B 1. (20 points) Interest rate and currency swap Using the table of swap rates, assume Trident enters into a three year swap agreement to receive euros and pay Japanese yen, on
The bonds have 20 years to maturity, pay interest at 9.3%, have a par value of $1,000 and are currently selling for $890.
Assuming that comparable bonds are paying 8 percent, what is the approximate dollar price for which you could sell your bond?
So, the 20 year corporate bond interest rate associated with the company’s rating is 3.86.
b. Generate a graph or table showing how the bond’s present value changes for semi-annually compounded interest rates between 1% and 15%.
The market value of debt was calculated using the existing yield of maturity on a 5 yar bond issued on a private placement basis on July 1, 2000. With the coupon of 5.75% and the discount price of 97, YTM for this bond is 6.62%. With a discount price being 97, the market value of debt is 17,654M.
2. The discount rate for this bond would be 0.70%. I started with an appropriate discount rate to derive my bond purchase price, since I would not purchase a bond without finding out ahead of time what a good price should be.
Besides the lowest coupon rate in Switzerland, we further calculate the bond repayment in determining which currency Carrefour better choose to issue its 10-year bond. Given all the data in which we will use it as out inputs in this case, using Excel to calculate the bond repayment and total interest rate over 10 years period.