Was the bond a good deal for investors

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In 1985, R. J. Reynolds (RJR for short) acquired Nabisco Brands and financed the deal with a variety of financial instruments, including three dual-currency Eurobonds. The first dual-currency bond, leadmanaged by Nikko, raised JPY25 billion (equivalent to USD105.5 million at the time of issue). Coupons were paid in yen, but the required final principal payment was not JPY25 billion but USD115.956 million. The coupon was 7.75%, even though a comparable fixed-rate Euroyen bond at that time carried only a 6.375% coupon. The actual 5-year forward rate at the time was around JPY200/USD.

a. Given the "fat" coupon, is this bond necessarily a great deal for the investors?

b. At maturity, in August 1990, the exchange rate was actually JPY144/USD.

Was the bond a good deal for investors?

Reference no: EM131116025

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