Extendible reset bonds, Financial Management

Extendible reset bonds are floaters in which the issuer is required to reset the coupon rate so that the issue will trade at a predetermined price (usually above the face value). The coupon rate of this type of floaters is based on the margin required by the market at the reset date for the security to trade at par value. On the reset date, the coupon rate is usually calculated as the average of rates suggested by two investment banking firms. The new rate not only reflects the level of interest rate at the reset date, but also the margin required by the market on the reset date.

For example, assume that the formula for extendible reset bond is 5.5% of MIBOR plus 125 basis points. At coupon reset date, investment bankers suggest that a margin of 150 basis points is to be maintained for the bond to trade above par. Based on the suggestion of the investment bankers, on reset date, the issuer resets the coupon rate to 5.5% of MIBOR plus 150 basis points.

Posted Date: 9/8/2012 5:24:34 AM | Location : United States







Related Discussions:- Extendible reset bonds, Assignment Help, Ask Question on Extendible reset bonds, Get Answer, Expert's Help, Extendible reset bonds Discussions

Write discussion on Extendible reset bonds
Your posts are moderated
Related Questions
Cyclical Variation By cyclical variations, we refer to the long-term movement of the variable about the trend line. Therefore, does the movement of the actual series about a tr

Prevention of Risk - Method of risk management In case of this method, the business avoids risk by taking appropriate steps for prevention of business risk or avoiding loss, su

Methods of workers participation in management: the various methods of workers participation in management are as follows: 1. Informative participation: it refers to sharing of

2. Suppose a 12% coupon bond sells at par today; and three years from today, the required rate on the same bond is 8%. What is the coupon rate on the bond today and what will it be

At times, companies accuse investors of performing credit sales that they make their quotations fall. Is that true? It is true: there are companies that accuse investors who pe

Explain the significant feature of the wealth maximisation The significant feature of the wealth maximisation criterion is that it considers is that it considers both the quali

Corporates generally raise funds from the Inter Corporate Deposit (ICD) markets. These instruments generally carry interest rates higher than the other short-term

X company sells on terms of 2/10, net 40. Gross sales last year were $4.5 million and accounts receivable averaged $ 437,500. Half of X''s customers paid on day 10 and took discoun

What are the Reasons why organisations grow Required to provide higher financial returns to investors e.g. increases the wealth of shareholders Possible to achieve econ

It is the third-largest stock exchange by trading size in the United States. In 2008 it was get hold by the NYSE Euronext and turn into the NYSE Amex Equities in 2009. The AMEX is