Bennett ple (Bennett), is issuing its first bond at par (100) in December 2018. A coupon...

  

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Bennett ple ("Bennett"), is issuing its first bond at par (£100) in December 2018. A coupon of 4 per cent will be paid annually in December, and the bond is redeemable in December 2021. The bond will be issued in sterling (GBP) and the first coupon will be paid in December 2019. Bennett plc is a UK-based supermarket company and its prospective bond offering has recently been assigned a rating of BBB by Standard & Poor's (S&P). You are interested in bidding for the bond and have observed the following: . UK Gilts yields are upward sloping, and the 3 Year has a Yield-to-Maturity (YTM) of 1.6%. Harte, a competitor of Bennett, has a GBP bond with 3.25 years to maturity, trading at YTM of 3.8%. However, the bond was recently downgraded from its BBB investment grade rating by S&P to CCC. • Murray, another supermarket, has a GBP bond with 2 years to maturity trading at a YTM of 4.4 %. S&P have rated this bond BBB+. (a) Based only on the information above, what is the maximum amount that you would bid for this bond, if the par value is £100? Justify your decision with reference to the other bonds mentioned above. (15 marks) (b) If this bond were callable after two years, would you bid more or less? Explain why. (10 marke) Bennett ple ("Bennett"), is issuing its first bond at par (£100) in December 2018. A coupon of 4 per cent will be paid annually in December, and the bond is redeemable in December 2021. The bond will be issued in sterling (GBP) and the first coupon will be paid in December 2019. Bennett plc is a UK-based supermarket company and its prospective bond offering has recently been assigned a rating of BBB by Standard & Poor's (S&P). You are interested in bidding for the bond and have observed the following: . UK Gilts yields are upward sloping, and the 3 Year has a Yield-to-Maturity (YTM) of 1.6%. Harte, a competitor of Bennett, has a GBP bond with 3.25 years to maturity, trading at YTM of 3.8%. However, the bond was recently downgraded from its BBB investment grade rating by S&P to CCC. • Murray, another supermarket, has a GBP bond with 2 years to maturity trading at a YTM of 4.4 %. S&P have rated this bond BBB+. (a) Based only on the information above, what is the maximum amount that you would bid for this bond, if the par value is £100? Justify your decision with reference to the other bonds mentioned above. (15 marks) (b) If this bond were callable after two years, would you bid more or less? Explain why. (10 marke)

Answer rating: 100% (QA)

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