You are Robin’s assistant, and she has asked you to prepare a memo to Dan 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.

(a) The security of the bond – that is, whether the bond has collateral.

(b) The seniority of the bond.

(c) The presence of a sinking fund.

(d) A call provision with specified call dates and call price

(e) A deferred call accompanying the call provision in (d).

(f) A make-whole call provision.

(g) Any positive covenants. Also, discuss several possible positive covenants West Coast Yachts might consider.

(h) Any negative covenants. Also, discuss several possible negative covenants West Coast Yachts might consider.

(i) A conversion feature (note that West Coast Yachts is not a publicly traded company).

(j) A floating-rate coupon.

Dan is also considering whether to issue coupon-bearing bonds or zero coupon bonds. The YTM on either bond issue will be 8 per cent. The coupon bond would have an 8 per cent coupon rate. The company’s tax rate is 28 per cent.