Catherine Bennett, the owner of Glory Fishing Boats (GFB), has decided to expand his business operations. She has instructed her newly hired financial analyst, Suzanne Young, to organize to sell $ 5 million in new 10-year bonds to finance construction. The bonds make yearly payments. Catherine instructed Suzanne that she is indifferent towards receiving full amount ($ 10M.) or 95% of the par value. By analysing similar risk bonds issued, Suzanne decided Yield to maturity (YTM) to be 5%. Furthermore, Suzanne has to decide about which types of bonds GFB should consider and what coupon rate the bond issue is likely to have to meet Catherine’s financial requirements.

Although Suzanne is aware of the features of different types of bonds, she is uncertain about the costs and benefits of some different types of bonds, so she is not clear how each type of the bond would affect the coupon rate of the bond issue.

Required

You are Suzanne’s assistant, and she has asked you to calculate the coupon rates if bonds currently sell for 95% of par value and par value respectively, and prepare a detailed report to Catherine describing the effect of each of the bond features (different types of bonds) on the coupon rate of the bond. She would also like you to describe any advantages or disadvantages of different types of bonds.