Assume that you are a portfolio manager for a large insurance company. The majority of the moneyyou manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in the bonds of a large corporation andhave just received news released by the company’s president explaining that it is unable to meetits current interest obligations because of deteriorating business operations related to increasedinternational competition. The president has a recovery plan that will take at least two years. During that time, the company will not be able to pay interest on the bonds and, she admits, if the plandoes not work, bondholders will probably lose more than half of their money. As a creditor, youcan force the company into immediate bankruptcy and probably get back at least 90 percent of thebondholders’ money. You also know that your decision will cause at least 10,000 people to losetheir jobs if the company ceases operations.Required:Given only these two options, what should you do? Consider who would be helped or harmed bythe two options.
Assume that you are a
you manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in the bonds of a large corporation and
have just received news released by the company’s president explaining that it is unable to meet
its current interest obligations because of deteriorating business operations related to increased
international competition. The president has a recovery plan that will take at least two years. During that time, the company will not be able to pay interest on the bonds and, she admits, if the plan
does not work, bondholders will probably lose more than half of their money. As a creditor, you
can force the company into immediate bankruptcy and probably get back at least 90 percent of the
bondholders’ money. You also know that your decision will cause at least 10,000 people to lose
their jobs if the company ceases operations.
Required:
Given only these two options, what should you do? Consider who would be helped or harmed by
the two options.
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