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

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

ABC Bonds XYZ Bonds Issue size $1.2 billion $150 million Maturity 10 years* 20 years Coupon 9% 10%

Collateral First mortgage General debenture Callable Not callable In 10 years Call price None 110 Sinking fund None Starting in 5 years

*Bond is extendible at the discretion of the bondholder for an additional 10 years.

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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Investments

ISBN: 9780077261450

8th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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