Problem:
AirJet Best Parts, Inc. would like to issue 20-year bonds to obtain remaining funds for the new Mexico plant. The company currently has 7.5% semiannual coupon bonds in the market that sell for $1,062 and mature in 20 years.
Requirement:
Question 1: What coupon rate should AirJet Best Parts set on its new bonds to sell them at par value?
Question 2: What is the difference between the coupon rate and the YTM of bonds?
Question 3: What factors will contribute to the riskiness of these bonds? Explain in detail your rationale.
Question 4: What type of positive and negative covenants may AirJet Best Parts, Inc. use in future bond issues?
Note: Provide support for rationale.