Assume that two firms issue bonds with the following characteristics. Both bonds are issued at par.

Ignoring credit quality, identify four features of these issues that might account for the lower coupon on the ABC debt.Explain.

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ABC Bonds XYZ Bonds Issue size Maturity Coupon Collateral Callable Call price Sinking fund *Bond is extendible at the discretion of the bondholder for an additional 10 years $1.2 billion 10 years* 9% First mortgage Not callable None None $150 million 20 years 10% General debenture In 10 years 110 Starting in 5 years