Yellow-Jacket Company, which manufactures imaging and health products for commercial and medical customers, included the following information in a note describing its long-term debt:

Long-term debt (partial)

Issue: (Dollars in Millions)

10.05% notes due 1999 $ 350 77

/8% notes due 2001 135 8.55% notes due 2000 200 63

/8% convertible debentures due 2001 278 Zero-coupon convertible debentures due 2011

($3,680 face value) 1,127 Required

a. Why do the interest rates differ among the various debt issues reported by Yellow-Jacket?

b. Why is information on these due dates useful to a financial analyst?

c. Assume that the prevailing market interest rate is 8.25% at the balance sheet date, and that each of the first four issues listed was initially issued at par

(face) value. Which of these liabilities will have a current market value above par? Which issues would have a market value below par value?

d. If Yellow-Jacket’s managers or board of directors wished to report a gain on early debt retirement. Which of these liabilities (see part

c) will be retired first? Why?

e. Why would lenders be willing to invest in zero-coupon bonds (bonds that do not pay periodic interest)?