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Corporate Finance:
Chapter 5: Financing East Coast Yacht’s Expansion Plans with a Bond

1. If the company benefits from the provision of the bond, then the coupon rate will be higher. If the bondholder’s benefit, then the bond will have lower coupon rate.
a. Bond’s with collateral will have lower coupon rate as bondholders have claim on collateral no matter what. It provides an asset which lowers default risk. Downside to company is that this collateral cannot be sold as an asset and needs to maintain it.
b. The more senior the bond, the lower the coupon rate.
c. A sinking fund reduces coupon rate because it provides a kind of future guarantee to bondholders. The company must make payments into the sinking fund or default so it must have positive cash flows.
d. A call provision would cause an increase in coupon rate. It must be used in the company’s advantage and bondholder’s disadvantage. The company can refinance the bond if interest rates drop and thus gain an......

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Approximate Word Count: 837
Approximate Pages: 4 (250 words per double-spaced page)

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