Please answer all part of the questions clearly and show all calculation if needed.

Question 3

Super Chicken Sdn Bhd is a listed company that is the largest egg producer in Malaysia. It intends to expand its operations to Indonesia and is launching, in Singapore, a 10-year US$100 million bond issue at a coupon rate of LIBOR + 8%. The bond will be collateralised by the assets of 10 farms in Malaysia as well as the assets of 10 farms that will be developed in two years in Indonesia.

As the bond analyst for the Singapore Bond Fund, you have been instructed to look into the merits and demerits of the bond issue.

(a) Explain what type of bond is the 10-year Superchicken US$ bond paying a coupon of LIBOR+8%?

(b) Besides interest rate and reinvestment risks, distinguish and discuss 3 types of risks that a Singapore investor who invests in this bond faces.

(c) Analyse the quality of the collateral that is attached to this bond.