At the present time, 10 year Treasury bonds are yielding 5.0%, where as investment grade corporate bonds (BBB rated-10 year) are paying 7%, please answer the following:

1. Why is there a differences in the rates? Please advise in financial terms and concepts.

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Lelia LubowitzLv2

28 Sep 2019

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HKM needs to raise 10 million for nancing an investment. The company plans to issue ve-year
bonds with a face value of $1000, and a coupon rate of 6.5% (annual payments). The following
table summarizes the yield to maturity for ve year corporate bonds with the same maturity and
coupon rate (annual coupons) for various ratings of the bonds by a well known rating agency:

Rating AAA AA A BBB BB
Yield 6.20% 6.30% 6.50% 6.90% 7.50%
HKM has asked the same rating agency to give a rating for its bonds (and paid for it) but has
not yet received the rating.
(a) If the rating turns out to be AA what will the price of the bonds be?
(b) How many bonds will the company need to issue (if you nd a fraction, round to the nearest
whole number since the company cannot issue fractions of bonds)

(c) Finally when the company sells the bonds after they have been rated, the price of each bond
is $959.54.
(i) What is the yield to maturity on HKM bonds? (If you think that you are clever in the
way you are answering this question, explain what you do and why).
(ii) What is the likely rating of the bonds? Are they junk bonds?

peachhedgehog527

Your friend Marvin is excited because he believes heâs found an investment bar- gain. A broker at QuickCash Investments has offered him an opportunity to buy a bond issued by Galveston Galleries Inc. at a very attractive price. The 30-year bond was issued ten years ago at a face value of $1,000, paying a coupon rate of 8%. Interest rates have risen recently driving bond prices down, but most economists think theyâll fall again soon driving prices back up. That makes Marvin and his broker think this bond may be a real money maker if he buys now, holds for a year or two, and then sells. The bonds of companies that were similar to Galveston at the time its bond was issued are now yielding 12%. Galvestonâs bond is selling at $300 which the broker claims is a fantastic bargain. Marvin knows youâre a finance major and has asked your opinion of the opportunity. How would you advise him?

please do in excel with calculation and please dont copy answers from other sites..

plumrhinoceros490

Gentry Company (GC) needs advice regarding their capital structure. They want to issue bonds with a 5-year maturity and maintain an S&P bond rating of BBB. Treasury bonds with a 5-year maturity currently yield 4.0%. Data on yield spreads, along with key financial ratios used by S&P, are provided below.

QUESTION: What is the maximum amount GC can borrow to achieve their goal, using the median financial ratios as a guide? Support your answer with calculations.

Gentry Co. 2010 Partial Income Statement ($000)
Sales	5,000
COGS	3,500
Gross profit	1,500
SG&A expense	500
Operating income	1,000

Gentry Co. 2010 Partial Balance Sheet ($000)
Cash	550	A/P	300
A/R	950	Total current liabilities	300
Inventory	1,800
Total current assets	3,300	Long-term debt	?

		Common stock	?
Fixed assets	9,100	Retained earnings	4,800
		Total equity
Total	12,400	Total	12,400

Total external financing needs (long-term debt + common stock) = 7,300

Corporate Bond Yield Spreads over Treasurys (in basis points)
Rating	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	30 yr
AAA	5	10	15	20	25	30	50
AA	15	25	30	35	42	49	60
A	40	49	55	63	67	70	77
BBB	65	80	90	100	112	116	129
BB	200	285	310	270	235	240	265

Key Median Financial Ratios, Long-Term Debt
	AAA	AA	A	BBB	BB	B	CCC
EBIT interest coverage (x)	23.8	13.6	8.5	4.2	2.3	0.9	0.4
Debt/capital (%)	6.2	34.8	40.4	45.6	57.2	74.2	101.2

Key Financial Ratios used in Bond Ratings
EBIT interest coverage	Earnings before interest and taxes / interest expense
Debt/capital	Debt / [Debt + shareholders' equity]

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At the present time, 10 year Treasury bonds are yielding 5.0%, where as investment grade corporate bonds (BBB rated-10 year) are paying 7%, please answer the following: 1. Why is there a differences in the rates? Please advise in financial terms and concepts.

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At the present time, 10 year Treasury bonds are yielding 5.0%, where as investment grade corporate bonds (BBB rated-10 year) are paying 7%, please answer the following:

1. Why is there a differences in the rates? Please advise in financial terms and concepts.