(8 marks total) In January 2021, James is an analyst for RBC's investment banking division and will recommend both a coupon rate and maturity for a new domestic bond issue for HJK Corp. (a Canadian corporation). HJK Corp. has some outstanding bond issues which are all currently rated BB and James expects the new bond issue will change the overall risk of the company and expects the new bond issue to be rated one rating category lower. The company wants to maintain the lowest interest costs possible but needs the proceeds of the bond for a minimum of 20 years and a maximum of 25 years. James has gathered the following information: Government of Canada Bonds Corporate Credit Spreads - Canada in bps Maturity Yield Rating 20 Yr 25 Yr 2020 3.6% A 235 240 2021 3.4% BBB 240 244 2041 3.2% BB 245 243 2046 3.1% B 263 259 2066 3.0% CCC 264 259 a) What is the appropriate Government of Canada Bond yield to use as the base for pricing the new bond issue for the 20-year bond issue? For the 25-year bond issue? (2 marks). b) What is the appropriate spread for HJK's 20-year bond issue? For the 25-year bond issue? (2 marks). c) If the bonds are to be issued at par, what is the appropriate coupon rate for HJK's 20-year bond issue? For the 25-year bond issue? (2 marks). d) What are the specific coupon rate and maturity that James should recommend and why? (2 marks) (8 marks total) In January 2021, James is an analyst for RBC's investment banking division and will recommend both a coupon rate and maturity for a new domestic bond issue for HJK Corp. (a Canadian corporation). HJK Corp. has some outstanding bond issues which are all currently rated BB and James expects the new bond issue will change the overall risk of the company and expects the new bond issue to be rated one rating category lower. The company wants to maintain the lowest interest costs possible but needs the proceeds of the bond for a minimum of 20 years and a maximum of 25 years. James has gathered the following information: Government of Canada Bonds Corporate Credit Spreads - Canada in bps Maturity Yield Rating 20 Yr 25 Yr 2020 3.6% A 235 240 2021 3.4% BBB 240 244 2041 3.2% BB 245 243 2046 3.1% B 263 259 2066 3.0% CCC 264 259 a) What is the appropriate Government of Canada Bond yield to use as the base for pricing the new bond issue for the 20-year bond issue? For the 25-year bond issue? (2 marks). b) What is the appropriate spread for HJK's 20-year bond issue? For the 25-year bond issue? (2 marks). c) If the bonds are to be issued at par, what is the appropriate coupon rate for HJK's 20-year bond issue? For the 25-year bond issue? (2 marks). d) What are the specific coupon rate and maturity that James should recommend and why? (2 marks)