Can you please help me solve P1-Q3
Part 1: Read the following information East Coast Yachts was founded 10 years ago by Larissa Warren. The company's operations are located near Hilton Head Island, South Carolina. The company has manufactured custom midsize, high- performance yachts for clients over this period, and its products have received high reviews for safety and reliability. The company's yachts have also recently received the highest award for customer satisfaction. The yachts are primarily purchased by wealthy individuals for pleasure use. Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning After Dan's EFN (External Finance Needed) analysis for East Coast Yachts, Larissa (the founder of East Coast Yachts) has decided to expand the company's operations. She has asked Dan to enlist an underwriter to help sell $75 million in new 25-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie, an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should consider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isn't clear on how each feature would affect the coupon rate of the bond issue. Please use the following information to complete the Partl - 01: You are Kim's assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the bond features on the coupon rate of the bond. Complete the tasks provided in the Partl-Q1 instruction below this box. Please use the following information to complete the Part1 - 02: Dan is also considering whether to issue coupon bearing bonds or zero-coupon bonds. The YTM on either bond issue will be an 8 percent. The coupon bond would have an 8 percent coupon rate, and the coupon will be paid semi-annually. The company's tax rate is 35 percent. Either bond has the par value of $1,000. Complete the tasks provided in the Partl-Q2 instruction below this box. Please use the following information to complete the Part1 03: Suppose East Coast Yachts issues the coupon bonds with a make-whole call provision (which means it is callable bond). The "make-whole call rate" is the Treasury rate on the call date plus "0.30%". The make-whole call rate is used to compute the "Make-whole Call Price" instead of the yield to maturity. Comnlete the tasks provided in the Part1-03 instruction below this box $75,000,000 25 8.00% 8.00% Capital to be raised: Number of years to maturity: Call the bonds in how many years: Coupon bond: YTM (Yield To Maturity): Annual coupon rate: Coupon per year: Par value (or Face value): Zero coupon bond: YTM (Yield To Maturity): Annual coupon rate: Face (Par) value: Tax rate: $1,000 8.00% 0.00% $1,000 35.00% Q3-0 Q3-a Make-whole Call Price Settlement date: Call date: Maturity date: Annual coupon rate: YTM (Yield To Maturity): Treasury rate on the call date: Make-whole call rate: Face value (as % of par) Coupons per year: Make-whole Call Price: % of par) Make-whole Call Price in $: 1/1/2019 1/1/2026 1/1/2044 8.00% 8.00% 4.80% Q3-6 Make-whole Call Price Settlement date: 1/1/2019 Call date: 1/1/2026 Maturity date: 1/1/2044 Number of years to maturity: Annual coupon rate: 8.00% Annual coupon PMT: YTM (Yield To Maturity): 8.00% Treasury rate on the call date: 4.80% Make-whole call rate: Face value in $ $1,000.00 Coupons per year: Make-whole Call Price in $: Settlement date: Call date: Maturity date: Annual coupon rate: YTM (Yield To Maturity): Treasury rate on the call date: Make-whole call rate: Face value (as % of par) Coupons per year: Make-whole Call Price: (% of par) Make-whole Call Price in $: Make-whole Call Price 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 100 100 100 100 100 100 2 100 2 23 2 o For Q3-a, you can use the Excel function. Find the make-whole call price if the treasury rate on the call date is 4.8% Use the Excel formula to complete this task. Formula: "=PRICE(settlement, maturity, rate, yld, redemption, frequency,[basis]) Here, the settlement date is "Call date" because the issuer buys back the bond on the call date. Here, the "Make-whole call rate" is used for the "yld" in the excel function. o For Q3-b, you can use the equation. Find the make-whole call price if the treasury rate on the call date is 4.8% Use the formula listed below Bond price = = Present value of the coupons Coupon PMT x=x(1-(1777) 1 + Present value of the face value 1 + Face Value *11+) The bonds in this case study pay "semi-annual coupon". So, your equation above must be modified as follow. Bond price = Present value of the coupons + Present value of the face value Coupon PMT Face Value Face Value x - (1+5)2 = + Coupon PMT ***(1-0 ) T-2 + Here, "T" is the number of periods from the call date to the maturity date. Since the coupon payment is paid semi-annually and the number of years between the call and maturity dates is 18, "T" is 36 = 18*2. Here, the "Make-whole call rate" is used for the "yld" in the excel function. Part 1: Read the following information East Coast Yachts was founded 10 years ago by Larissa Warren. The company's operations are located near Hilton Head Island, South Carolina. The company has manufactured custom midsize, high- performance yachts for clients over this period, and its products have received high reviews for safety and reliability. The company's yachts have also recently received the highest award for customer satisfaction. The yachts are primarily purchased by wealthy individuals for pleasure use. Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning After Dan's EFN (External Finance Needed) analysis for East Coast Yachts, Larissa (the founder of East Coast Yachts) has decided to expand the company's operations. She has asked Dan to enlist an underwriter to help sell $75 million in new 25-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie, an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should consider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some of them, so he isn't clear on how each feature would affect the coupon rate of the bond issue. Please use the following information to complete the Partl - 01: You are Kim's assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the bond features on the coupon rate of the bond. Complete the tasks provided in the Partl-Q1 instruction below this box. Please use the following information to complete the Part1 - 02: Dan is also considering whether to issue coupon bearing bonds or zero-coupon bonds. The YTM on either bond issue will be an 8 percent. The coupon bond would have an 8 percent coupon rate, and the coupon will be paid semi-annually. The company's tax rate is 35 percent. Either bond has the par value of $1,000. Complete the tasks provided in the Partl-Q2 instruction below this box. Please use the following information to complete the Part1 03: Suppose East Coast Yachts issues the coupon bonds with a make-whole call provision (which means it is callable bond). The "make-whole call rate" is the Treasury rate on the call date plus "0.30%". The make-whole call rate is used to compute the "Make-whole Call Price" instead of the yield to maturity. Comnlete the tasks provided in the Part1-03 instruction below this box $75,000,000 25 8.00% 8.00% Capital to be raised: Number of years to maturity: Call the bonds in how many years: Coupon bond: YTM (Yield To Maturity): Annual coupon rate: Coupon per year: Par value (or Face value): Zero coupon bond: YTM (Yield To Maturity): Annual coupon rate: Face (Par) value: Tax rate: $1,000 8.00% 0.00% $1,000 35.00% Q3-0 Q3-a Make-whole Call Price Settlement date: Call date: Maturity date: Annual coupon rate: YTM (Yield To Maturity): Treasury rate on the call date: Make-whole call rate: Face value (as % of par) Coupons per year: Make-whole Call Price: % of par) Make-whole Call Price in $: 1/1/2019 1/1/2026 1/1/2044 8.00% 8.00% 4.80% Q3-6 Make-whole Call Price Settlement date: 1/1/2019 Call date: 1/1/2026 Maturity date: 1/1/2044 Number of years to maturity: Annual coupon rate: 8.00% Annual coupon PMT: YTM (Yield To Maturity): 8.00% Treasury rate on the call date: 4.80% Make-whole call rate: Face value in $ $1,000.00 Coupons per year: Make-whole Call Price in $: Settlement date: Call date: Maturity date: Annual coupon rate: YTM (Yield To Maturity): Treasury rate on the call date: Make-whole call rate: Face value (as % of par) Coupons per year: Make-whole Call Price: (% of par) Make-whole Call Price in $: Make-whole Call Price 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2019 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2026 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 1/1/2044 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 100 100 100 100 100 100 2 100 2 23 2 o For Q3-a, you can use the Excel function. Find the make-whole call price if the treasury rate on the call date is 4.8% Use the Excel formula to complete this task. Formula: "=PRICE(settlement, maturity, rate, yld, redemption, frequency,[basis]) Here, the settlement date is "Call date" because the issuer buys back the bond on the call date. Here, the "Make-whole call rate" is used for the "yld" in the excel function. o For Q3-b, you can use the equation. Find the make-whole call price if the treasury rate on the call date is 4.8% Use the formula listed below Bond price = = Present value of the coupons Coupon PMT x=x(1-(1777) 1 + Present value of the face value 1 + Face Value *11+) The bonds in this case study pay "semi-annual coupon". So, your equation above must be modified as follow. Bond price = Present value of the coupons + Present value of the face value Coupon PMT Face Value Face Value x - (1+5)2 = + Coupon PMT ***(1-0 ) T-2 + Here, "T" is the number of periods from the call date to the maturity date. Since the coupon payment is paid semi-annually and the number of years between the call and maturity dates is 18, "T" is 36 = 18*2. Here, the "Make-whole call rate" is used for the "yld" in the excel function
