a)Wesfarmers Ltd. is considering issuing debt securities to finance its purchase of a building for the purpose
Question:
a)Wesfarmers Ltd. is considering issuing debt securities to finance its purchase of a building for the purpose of expanding its business.
i)The two main types of debt securities often used by the company for financing are commercial papers and bonds. Please advise this company on which one of these securities it should use for this purpose.define and distinguish between these two types of securities.
ii)Assume the company has decided to issue 5-year bonds at a Face Value of $1,000. The coupon rate of the bonds is 8% per annum and the coupons are paid semi-annually. If the bonds are selling for $1000 per bond,without calculation, briefly explain what the current yield to maturity of these bonds would be?
iii)If an investor Jason bought a bond at issuance at the price stated in part a) ii) and then sold it at a market yield of 5% p.a. after holding it for 2 years, what was his holding period yield per annum?
iv)Is Jason's holding period yield higher or lower than the yield to maturity at issuance, i.e. the answer to part a) ii) explain why it happened?