.1. Bond maturity
(i) Due to the pandemic, lots of enterprises have to downsize their production and business activities. Meanwhile, to support the trading of bond market, the Government has issued new regulations to extend trading time for bonds in the market and lower regulatory minimum margin for bond trading. Forecast and explain the interest rate movement in the market for the year to come, using bond supply and demand curves mode land graph with the above-mentioned factors (holding other things being unchanged, including macroeconomic policies such as fiscal policies).
(ii) With the above-mentioned forecast, propose and explain your decision for the maturity of the bonds (long or short term) issued right now.
2.2. Bond coupon
There have currently been tax-free Municipal Bonds with 5% coupon annually in the market with the same liquidity, risk.
(i) What is the most important factor that influences the corporate bond purchasing decision of investors? What should be your bond’s minimum coupon rate in order to attract investors to buy your bonds, knowing that the marginal tax rate is 33%.
(ii) Is there any possibility for you to successfully sell the bond with 7% coupon rate? Why?
2.3. Bond prices
Suppose you decide to issue4-year-bonds with 1 million VND face value, 5.5% p.a. coupon, semi-annual coupon payment. You know that investors will be happy with the yield of 7% p.a. for their investment, what is the bond price you should offer in the market? Show table of calculation.
2.4. Bond currency denomination
Beside domestic issuances, your team also proposes a plan to issue bonds abroad. Seoul financial market is one of your preferred market. Market research shows that Bank of Korea has followed the expansionary monetary policies and export-support-oriented exchange rate policies, meanwhile recovery signals in the US economy have brought Fed into the decision of tapering.
(i) Forecast (with explanation) movement trends of the value of Korean Won and US Dollar.
(ii) How will the above movement trends affect your choice of issuing Eurobonds or Foreign Bonds in South Korean market.