Suppose Sony issues $100,000,000 of 5-year dollar bonds. Nomura will handle the bond issue for a fee

Question:

Suppose Sony issues $100,000,000 of 5-year dollar bonds. Nomura will handle the bond issue for a fee of 1.875%. Sony’s bonds will be priced at par if they carry a coupon of 8.5%. As the swap trader for Mitsubishi UFJ (MUFJ), you have been quoting the following rates on 5-year swaps: U.S. Dollars: 8.00% bid and 8.10% offered against the 6-month dollar LIBOR Japanese Yen: 4.50% bid and 4.60% offered against the 6-month dollar LIBOR Sony would like to do the dollar bond issue, but it prefers to have fixed-rate yen debt. If MUFJ gets the proceeds of the dollar bond issue, giving Sony an equivalent amount of yen, and MUFJ agrees to make the dollar interest payments associated with Sony’s dollar bonds, what yen interest payments should MUFJ charge Sony? What is Sony’s all in cost in yen? The current spot exchange rate is ¥98.50/$.

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... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...