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
You are required to conduct a stock market simulation for a period of  four weeks (week 4 - week 7). This is a group project which may consist of five members only. Each group will


During and economic downturn, we can acquire another company by purchasing its stock for $6 billion. The company is earning $700 million a year, which is available for dividends, a

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

list of those and their functions source of fund and how the sources are lend out?

Power is a listed group reporting under IFRS. The group was established when Power purchased an 80% of the ordinary share capital of Shuttle, a listed company, on 1 January 2009 fo

Below is information about the spot and forward rates for three currencies against the US dollar (USD): (a) Critically discuss the interest rate parity and covered interest

If current ratio for a company is equal to its acid test (that is, quick ratio), then: A: The current ratio must be less than one. B: Working capital is negative. C: Trade

You purchased your house 5 years ago for $110,000 and based on recent appraisals it can be sold today for $141,000. What effective annual rate of return did you earn?

Q. What do you meant by Overtrading? When a company is trading large volumes of sales very quickly, it may also be generating large amounts of credit sales and consequently lar