Part 1:

1.Proposal

Your Company is going to have a big real estate project which requires significant source of funds. What should be your arguments to persuade Board of Directors to approve your teams plan in issuing bonds rather than stocks (from the point of view of the Companys benefits).

2.1. Bond maturity

(i) With the fact that the economy is rapidly recovering after the pandemic, it is expected that there will be a lot of great investment opportunities, meanwhile inflation may face rising trend the next year. Forecast and explain the interest rate movement in the market for the year to come, using bond supply and demand curves model and graph with the above-mentioned factors (holding other things being unchanged, including macroeconomic policies such as fiscal policies).

(ii) With the above-mentioned forecast, propose and explain your decision for the maturity of the bonds (long or short term) issued right now.

2.2. Bond coupon

There have currently been tax-free Municipal Bonds with 4% coupon annually in the market with the same liquidity and risk.

(i) What is the most important factor that influences the corporate bond purchasing decision of investors? What should be your bonds minimum coupon rate in order to attract investors to buy your bonds, knowing that the marginal tax rate is 28%.

(ii) Is there any possibility for you to success fully sell the bond with 5% coupon rate? Why?

2.3. Bond prices

Suppose you decide to issue3-year-bonds with 1 million VND face value, 6% p.a. coupon, semi-annual coupon payment. You know that investors will be happy with the yield of 8% p.a. for their investment, what is the bond price you should offer in the market? Show table of calculation.

2.4. Bond currency denomination

Beside domestic issuances, your team also proposes a plan to issue bonds abroad. Singapore financial market is one of your preferred market. Market research from your team shows that while Singapore economy is booming with high Balance of Payment surplus, the US economy is just starting recovery so FED still keeps easing monetary policies, leading to the risk of high inflation.

(i) Forecast (with explanation) movement trends of the value of Singapore Dollar and US Dollar.

(ii) How will the above movement trends affect your choice of issuing Eurobonds or Foreign Bonds in Singapore market.