The inexperienced finance trainee at Mugs-R-Us plc says that he can save the company money on its

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The inexperienced finance trainee at Mugs-R-Us plc says that he can save the company money on its forthcoming issue of ten-year bonds. ‘The rate of return required for bonds of this risk class in the financial markets is 10 per cent and yet I overheard our merchant banking adviser say, “We could issue a bond at a coupon of only 9 per cent.” I reckon we could save the company a large sum on the £100m issue.’ Do you agree with the trainee’s logic?

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