Extendible reset bonds, Financial Management

Assignment Help:

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.


Related Discussions:- Extendible reset bonds

Apv capital budgeting is use for foreign capital expenditure, What creates ...

What creates the APV capital budgeting framework useful for analyzing foreign capital expenditures? The APV framework is a value - additivity method. Since international projects

Calculate the future value of annuity, 1.  An investor is thinking of inves...

1.  An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum. The investment that he is planning is for the higher education

Highest earnings-per-share, McGovern Company is comparing two disimilar cap...

McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II).  Under Plan I, the Company would have 700,000 shares of s

Yield spread strategies, Bond market can be classified into various s...

Bond market can be classified into various segments based on the nature of characteristics such as type of issuer (central bank, corporate etc.), credit risk (ris

Explanation and definition of the mos, a) i = 800 units, ii = 250 units, ii...

a) i = 800 units, ii = 250 units, iii = 60% b) Explanation and Definition of the MOS. Play-it has the better MOS in absolute terms, although Tread-it has the better MOS when mea

Analyse interest rate swap and currency swap, Problem: (a) Critically ...

Problem: (a) Critically analyse interest rate swap and currency swap. (b) Explain why a bank may face credit risk when it enters into offsetting swap contracts. (c) Two

Demerits of net present value method, Q. Demerits of net present value meth...

Q. Demerits of net present value method? (i) Difficult to Understand as well as Implement:- This method is tricky to understand as well as implement in comparison to the paybac

Benefits of the proposed policy change, Q. Benefits of the proposed policy ...

Q. Benefits of the proposed policy change? Short-term sources of debt finance comprise overdrafts and short-term loans. An overdraft offers elasticity but since it is technical

Capital gain on investment, a. Why do prices of low coupon bonds tend to fl...

a. Why do prices of low coupon bonds tend to fluctuate more than the prices of high coupon bonds? And why do prices of longer te$ to maturity bonds tend to fluctuate more than th

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd