3. The presence of a sinking fund . Mark Sexton and Todd Story, the owners of Pinjarra Air, have decided to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $35 million in new 10-

year bonds to finance construction. Chris has entered into discussions with Renata Harper, an underwriter from the firm of Raines and Warren, about which bond features Pinjarra Air should consider and what coupon rate the issue will likely have.

Although Chris is aware of the bond features, he is uncertain about the costs and benefits of some features, so he is not sure how each feature would affect the coupon rate of the bond issue. You are Renata’s assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.