A company has decided to expand their operations. An underwriter will sell $50 million in new 20-year bonds to finance new construction. What type of bond features should the company consider and what coupon rate will the issue likely have? What is the cost and benefits of the bonds and how does each feature affect the coupon rate of the bond issue?

What effects do the following bond features have on the coupon rate of the bond? What are the advantages and disadvantages of each feature?

1.The security of the bond, that is, whether or not the bond has collateral.

2.The seniority of the bond.

3.The presence of a sinking fund.

4.A call provision with specified call dates and call prices.

5.A deferred call accompanying the above call provision.

6.A make-whole call provision.

7.Any positive or negative covenants

8.A conversion feature

9.A floating rate coupon

Should a company issue coupon bearing bonds or zero coupon bonds? The YTM on either bond issue will be 7.5%. The coupon bond would have a 6.5% coupon rate. The company's tax rate is 35%.