After Hans EFN analysis for the LSUS Corporation, Amanda has decided to expand the companys operations. She has asked Han to enlist an underwriter to help sell $50 million in new 20-year bonds to finance new construction. Han has entered into discussions with Kim, an underwriter from the firm of Crowe & Mallard, about which bond features the LSUS corporation should consider and also what coupon rate the issue will likely have. Although Han is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isnt clear on how each feature would affect the coupon rate of the bond issue.

You are Kims assistant, and she has asked you to prepare a memo to Han 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.

Han is also considering whether to issue coupon bearing bonds or zero coupon bonds. The YTM on either bond issue will be 7.5 percent. The coupon bond would have a 6.5 percent coupon rate. The companys tax rate is 35 percent.

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

The seniority of the bond.

The presence of a sinking fund.

A call provision with specified call dates and call prices.

A deferred call accompanying the above call provision.

A make-whole call provision.

Any positive or negative covenants

A conversion feature

A floating rate coupon

Discuss each above element in details and recommend what should be included on the indenture contract