Credit Corp (CCP) is an Australian receivables management company which provides debt purchase and debt collection services, primarily focusing on the acquisition of purchased debt ledgers (PDLs) comprised of distressed consumer debt from Australian and New Zealand banks, finance companies, and telecommunication companies Using the last 5 years of monthly data, CCP is reported to have a beta of 0 61 compared to the ASX200 The annual risk free interest rate is 1 5 and the expected rate of return on the market is 10 p a CCP had a closing price today of $17 05 It will pay a dividend of $0 75 at the end of the year CCP has determined that it needs to raise more capital to fund liabilities incurred due to the pause in residential mortgage repayments during the Coronavirus epidemic Its Chief Financial Officer (CFO) suggests issuing unsecured debt, and is considering the following two options answer each question regarding the options A six year Zero Coupon bond with a face value of $100 The CFO believes that the bond can be sold for $795 What is the implied discount rate on the zero coupon bond A five year 3 5 coupon bond which would issue at par value Face Value $100 Which bond do you think should be preferred What things should be taken into consideration Calculate the duration of each of the bonds CCP has issued superannuation pension guarantees Under these guarantees, they will be required to pay $30 million in 3 years time They would like to put some money away now at a certain interest rate to ensure they will have enough to meet their liability Further, they are also concerned about changes in the rate at which they can invest In order to effectively immunize their position, please answer the following questions What duration bonds should they be looking for in order to effectively immunise CCP has bought an appropriate duration bond One year later (ie 2 years before the single payment obligation), the government interest rate drops 2 How does the immunisation work in this case Ie what happens to bond price Reinvestment rate Do you expect CCP will still be able to meet the obligation

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Credit Corp (CCP) is an Australian receivables management company which provides debt purchase and debt collection services, primarily focusing on the acquisition of purchased debt

Credit Corp (CCP) is an Australian receivables management company which provides debt purchase and debt collection services, primarily focusing on the acquisition of purchased debt ledgers (PDLs) comprised of distressed consumer debt from Australian and New Zealand banks, finance companies, and telecommunication companies. Using the last 5 years of monthly data, CCP is reported to have a beta of 0.61 compared to the ASX200. The annual risk-free interest rate is 1.5% and the expected rate of return on the market is 10% p.a. CCP had a closing price today of $17.05. It will pay a dividend of $0.75 at the end of the year.

CCP has determined that it needs to raise more capital to fund liabilities incurred due to the pause in residential mortgage repayments during the Coronavirus epidemic. Its Chief Financial Officer (CFO) suggests issuing unsecured debt, and is considering the following two options answer each question regarding the options:
1. A six year Zero-Coupon bond with a face-value of $100. The CFO believes that the bond can be sold for $795. What is the implied discount rate on the zero-coupon bond?
2. A five year 3.5% coupon bond which would issue at par value. Face Value = $100. Which bond do you think should be preferred? What things should be taken into consideration?
3. Calculate the duration of each of the bonds
CCP has issued superannuation pension guarantees. Under these guarantees, they will be required to pay $30 million in 3 years time. They would like to put some money away now at a certain interest rate to ensure they will have enough to meet their liability. Further, they are also concerned about changes in the rate at which they can invest. In order to effectively immunize their position, please answer the following questions:
1. What duration bonds should they be looking for in order to effectively immunise?
2. CCP has bought an appropriate duration bond. One year later (ie 2 years before the single-payment obligation), the government interest rate drops 2%. How does the immunisation work in this case? Ie what happens to bond price? Reinvestment rate? Do you expect CCP will still be able to meet the obligation?