Assume that Seminole, Inc., considers issuing a Singapore dollardenominated bond at its present coupon rate of 7

Question:

Assume that Seminole, Inc., considers issuing a Singapore dollar–denominated bond at its present rate of 7 percent, even though it has no incoming cash flows to cover the bond payments. It is attracted to the low financing rate, since U.S. dollar–denominated bonds issued in the United States would have a rate of 12 percent. Assume that either type of bond would have a 4-year and could be issued at Seminole needs to borrow $10 million. Therefore, it will issue either U.S. dollar denominated bonds with a of $10 million or bonds denominated in Singapore dollars with a of S$20 million. The spot rate of the Singapore dollar is $.50. Seminole has forecasted the Singapore dollar’s value at the end of each of the next 4 years, when payments are to be paid:
Exchange Rate of
End of Year Singapore Dollar
1 .......... $.52
2 .......... .56
3 .......... .58
4 .......... .53
Determine the expected annual cost of financing with Singapore dollars. Should Seminole, Inc., issue bonds denominated in U.S. dollars or Singapore dollars? Explain.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...