Question
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2021. Prices were determined by underwriters at different times during the last few weeks. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Company Bond Price Stated Rate 1. BB Corp. $ 107 million 15 % 2. DD Corp. $ 100 million 14 % 3. GG Corp. $ 93 million 13 % Each of the bond issues matures on December 31, 2040, and pays interest semiannually on June 30 and December 31. For bonds of similar risk and maturity, the market yield at January 1, 2021, is 14%. Required: Other things being equal, which of the bond issues offers the most attractive investment opportunity if it can be purchased at the prices stated? The least attractive?
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