Question

Woolworths is issuing 10 year bonds that pay a 3% p.a. coupon annually with a face value of $1,000,000. The three potential buyers and their yield-to-maturity are: Sarah who requires a YTM of 3% p.a., Sean with a YTM of 2% every half year and Anh that needs to ean 1.5% each quarter.

For each bond, Sarah is willing to pay  $102,375.31/$1,000,000.00/$89,675.31/$101,475.31/$999,575.31 , Sean is willing to pay  $1,118,891.04/$1,018,891.04/$1,218,891.04/$958,891.04/$918,891.04 and Anh is willing to pay  $777,197.39/$778,197.39/$780,197.39/$776,197.39/$779,197.39 . (hint: EAR is not required, all rates adjustments are nominal adjustments only)

The order of buyers that Woolworths will sell to are  1st Anh, 2nd Sean, 3rd Sarah/1st Sean, 2nd Sarah, 3rd /Anh1st Anh, 2nd Sarah, 3rd Sean/1st Sarah, 2nd Sean, 3rd Anh/1st Sean, 2nd Anh, 3rd Sarah . If Woolworths wishes to use the capital raised to maturity match, the bond capital will used to fund  long term assets; this reduces liquidity risk./short term assets; this increases liquidity risk./current liabilities; this reduces liquidity risk/.current assets; this increases liquidity risk./medium term assets; this reduces liquidity risk. .

Answer 1