1. You are Kim’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature. 1. The security of the bond, that is, whether or not the bond has collateral
After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decided
to expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $40 million
in new 20-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie,
an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts should
consider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, he
is uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature would
affect the coupon rate of the bond issue.
Respond to the following questions:
1. You are Kim’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of each feature.
1. The security of the bond, that is, whether or not the bond has collateral
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