Regent Park
Chapter 7 Essay Q’s
1. ABC Corporation, a Canadian firm, wants to float a bond issue in the United Kingdom. Which choices does the company have? Discuss the main characteristics of each option. What do you recommend?
Answer: ABC Corporation can issue foreign bonds (Bulldogs) or Eurobonds. Foreign bonds are bonds issued by a foreign borrower in a national market, in the national currency, and subject to the national securities regulations. Eurobonds are bonds sold in countries other the country that issued the denominating currency. Foreign bonds tend to be registered bonds and subject to the local regulations while Eurobonds tend to be bearer bonds. Generally, foreign bonds are more costly than Eurobonds. Therefore, Eurobonds are likely the better option. page: 157-158
2. A- Canada Inc. has issued a dual-currency bond that pays $555.10 at maturity per SF1,000 of par value. The company’s cash flows are exclusively in Canadian dollars.
a) What is the implicit $/SF exchange rate at maturity?
b) Will the company be better or worse off if the actual exchange rate at maturity is $0.6123/SF?
Answer: a) $555.10/SF 1,000 = $ 0.5551
b) The company will be better off.
Page: 175, problem 3
3. ZZZ Corp. wants to issue zero-coupon bonds with a 10-year maturity. The implied yield to maturity on these bonds is 5% and ZZZ Corp. wants to raise $10,000,000. (Assume no transaction costs). How much money will ZZZ Corp. have to pay at maturity of the bond?
Answer: 10,000,000 (1.05)10 = $16,288,946.27
4. Assume Bank of Montreal has two zero-coupon bonds outstanding, each for a face value $100,000,000. Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value. Calculate the implied yield to maturity of each bond.
Answer:
Bond A:
650,000,000(1 + i)10 = 100,000,000 i = 4.4%
Bond B:
400,000,000(1 + i)20 = 100,000,000 i = 4.67%
5. What happens to the present value of the
1. ABC Corporation, a Canadian firm, wants to float a bond issue in the United Kingdom. Which choices does the company have? Discuss the main characteristics of each option. What do you recommend?
Answer: ABC Corporation can issue foreign bonds (Bulldogs) or Eurobonds. Foreign bonds are bonds issued by a foreign borrower in a national market, in the national currency, and subject to the national securities regulations. Eurobonds are bonds sold in countries other the country that issued the denominating currency. Foreign bonds tend to be registered bonds and subject to the local regulations while Eurobonds tend to be bearer bonds. Generally, foreign bonds are more costly than Eurobonds. Therefore, Eurobonds are likely the better option. page: 157-158
2. A- Canada Inc. has issued a dual-currency bond that pays $555.10 at maturity per SF1,000 of par value. The company’s cash flows are exclusively in Canadian dollars.
a) What is the implicit $/SF exchange rate at maturity?
b) Will the company be better or worse off if the actual exchange rate at maturity is $0.6123/SF?
Answer: a) $555.10/SF 1,000 = $ 0.5551
b) The company will be better off.
Page: 175, problem 3
3. ZZZ Corp. wants to issue zero-coupon bonds with a 10-year maturity. The implied yield to maturity on these bonds is 5% and ZZZ Corp. wants to raise $10,000,000. (Assume no transaction costs). How much money will ZZZ Corp. have to pay at maturity of the bond?
Answer: 10,000,000 (1.05)10 = $16,288,946.27
4. Assume Bank of Montreal has two zero-coupon bonds outstanding, each for a face value $100,000,000. Bond A matures in 10 years and sells at a discount of 35% off face value and bond B matures in 20 years and sells at a discount of 60% off face value. Calculate the implied yield to maturity of each bond.
Answer:
Bond A:
650,000,000(1 + i)10 = 100,000,000 i = 4.4%
Bond B:
400,000,000(1 + i)20 = 100,000,000 i = 4.67%
5. What happens to the present value of the