Chat with us, powered by LiveChat Your company, Vestal Tools, Inc., is about to offer a new issue of corporate bonds to the investing marketplace | Wridemy

Your company, Vestal Tools, Inc., is about to offer a new issue of corporate bonds to the investing marketplace

Your company, Vestal Tools, Inc., is about to offer a new issue of…

 

  • Your company, Vestal Tools, Inc., is about to offer a new issue of corporate bonds to the investing marketplace. You have been asked by your CFO to provide a reasonable estimate of the nominal interest rate (nominal yield)Rd, for a new issue of Aaa-rated bonds to be offered by Vestal Tools.
  • Some agreed-upon procedures related to generating estimates for key variables in the relevant equation, Rd = R*rf + IRP + DRP + MP + LP, are as follows:

 

  1. Assume that the current (mid-2008, based on information provided in this case) financial market environment is considered representative of the prospective tone of the market near the time of the offering of the new bonds to the investing public. This means that current interest rates will be used as benchmarks for some of the variable estimates. All estimates will be rounded off to hundredths of a percent; thus, 6.288 becomes 6.29 percent.
  2. The real risk-free rate of interestR*rf, is the difference between the calculated average yield on 3-month Treasury bills and the inflation rate.
  3. The inflation-risk premiumIRP, is the rate of inflation expected to occur over the life of the bond under consideration.
  4. The default-risk premiumDRP, is estimated by the difference between the average yield on Aaa-rated bonds and 30-year Treasury bonds.
  5. The maturity premiumMP, is estimated by the difference between the calculated average yield on 30-year Treasury bonds and 3-month Treasury bills.
  6. Vestal Tools’ bonds will be traded on the New York Exchange for Bonds, so the liquidity premiumLP, will be slight. It will be greater than zero; however, because the secondary market for the firm’s bonds is more uncertain than that of some other tools producers, it is estimated at 3 basis points.

Note: A basis point is one one-hundredth of 1 percent. (E.g., 1 basis point = 0.01%; 25 basis points = 0.25%)

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.

Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.

Do you need an answer to this or any other questions?

About Wridemy

We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.

How It Works

To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.

Are there Discounts?

All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.

Hire a tutor today CLICK HERE to make your first order

Related Tags

Academic APA Writing College Course Discussion Management English Finance General Graduate History Information Justify Literature MLA