The managers of Walt Disney World decide to create a new park alongside the Magic Kingdom, Epcot, Animal Kingdom, Hollywood Studios, Blizzard Beach, and Typhoon Lagoon.

While deciding how to raise money for the project, they consult with some of their smartest advisors: Cinderella, Mickey Mouse, and Winnie the Pooh.

1. Here are their ideas for raising money:

• Cinderella: Raise the price of the Cinderella dresses, and use the extra income to fund the project.
• Mickey Mouse: Increase the number of shares the company owns by buying back 50% of the outstanding shares.
• Snow White: Invest in shares of Apple in order to benefit from the upside of the stock, although first make sure it is not poisonous.
• Winnie the Pooh: Issue new Disney bonds and sell them on the market.

Which character is trying to raise money using a debt instrument?

A. Cinderella

B. Winnie the Pooh

C. Mickey Mouse

D. Snow White

2. The company decides to follow Winnie the Poohs advice and on 02/01/18, they issue a $2 billion bond offering, with each bond having a face value of $1000. The Series A bonds ($1.2 million of the offering) have a coupon rate of 3% (paid semiannually), and a maturity date of 02/01/23. The Series B bonds ($800 million) have a coupon rate of 4% (paid semiannually), and a maturity date of 02/01/28.

How much would Mr. Smith pay to purchase a Series A bond on the offering 02/01/18?

A. $1000

B. $1003

C. $1030

D. $1150

3. How much would Mr. Smith get back from Disney on 02/01/23 for one Series A bond (include principle and interest)?

A. $1000

B. $1003

C. $1015

D. $1030

E. $1150

4. What can be one of the reasons that Series B bonds have a higher coupon?

A. Since the Series B is a longer term bond, it is more volatile (like a stock), so it needs to pay a higher coupon to compete with the dividend yield of the stock.

B. The Series B bonds will only be offered to institutional investors who are always given a preferential interest rate over retail investors.

C. Series B bonds have a longer maturity date, and since investors are lending money for a longer time, they will demand a higher return on their money.

D. Disney wants to attract more buyers to the Series B, and they know that after the bonds are issued and are trading, they can simply lower the coupon to the same level as the Series A bonds.

5. On 02/01/18 Mr. Smith purchases 50 Series A bonds and 100 Series B bonds.

How much money did Mr. Smith invest in total?

A. $50,000

B. $100,000

C. $150,000

D. $175,000