Effective yield to maturity, Financial Econometrics

Research in Motion (RIM), once known as the global leader in wireless innovation, has lost its darling status after the introduction of the Apple iPhone.  In 2011, RIM's stock price declined by approximately 75%. Now management believes they might have to raise capital this year (2012) by issuing debt. You work for an investment bank in Toronto that has been hired by RIM to advise them on the debt issue. Assume the global markets are continuing to experience stress and credit spreads are continuing to widen.

Based on your research and market conditions, you feel RIM will have raise $10 million by issuing a four-year bond that has a current yield of 17.61% and a 15.0% coupon rate (coupons will be paid semi-annually).

a) If RIM decides to issue this bond, what will be the effective yield to maturity?

b) Assume an investor bought the bond (in part a) and sold it after two years.  If market interest rates remained constant over this period, what was the holding period return on this investment? (Assume the coupons were not re-invested).

c) In order to be able to pay back the total face value ($10 million) in four years, RIM's management has decided to use a sinking fund in which it will make semi-annual payments. The sinking fund pays an interest of 9.0% compounded semi-annually. How much does the company have to contribute to the sinking fund every six months to ensure it has enough funds to pay back the entire bond issue at maturity? (Assume payments will be made at the end of each six month period.)

Posted Date: 2/19/2013 4:34:35 AM | Location : United States







Related Discussions:- Effective yield to maturity, Assignment Help, Ask Question on Effective yield to maturity, Get Answer, Expert's Help, Effective yield to maturity Discussions

Write discussion on Effective yield to maturity
Your posts are moderated
Related Questions
Question 1: (a) Highlight the main theories of the level and term structure of interest rates. (b) To what extent they can be used to explain the level and structure of inte

Question : (a) Why OLS cannot be applied in the presence of simultaneous equation bias? b) i) Prepare a simultaneous equation model for the supply and demand of dentist in

Q. What do you mean by Acquistions - takeovers? Acquistions / takeovers: an essential feature of the merger through the absorption as well as consideration in the combination t

If an MBA cost $35,000 and money can be invested to earn 7 percent, how much does the annual salary for a person holding a masters degree have to exceed that of other college gradu

Question 1: (a) Analyse the impact of boom and bust in the economy on business activities? (b) What measures can policy makers use to promote economic expansion? Ques

Q. What do you meant by Trade payable days? Year-end trade payables/Credit purchases (or cost of sales)x 365 days This is the length of time taken to pay suppliers. Ratio ca

Create a new µσ-plane graph displaying the risk-less cash fund, tangency portfolio, Pythagoras's new optimal portfolio and the Capital Market Line relative to the risky efficient f

Intercorporate investments: DI has a 25% interest in a gold mine in the Yukon. They have held this investment for eighteen months. During this time it has not made any mon

The international monetary fund and the world bank are the main lending financial institutions that give assistance to developing nations in the restoration of their economy. Wh

In May 2003, Gencorp acquired Sequa Corp.'s propulsion subsidiary ARC for $133million in cash and $11 million in transactions costs. Table below lists selected information about