Question

factors that should be taken into account for the management of a maturity profile of a firm's debt portfolio

Answer 1

The factors that should be taken into account for the management of a maturity profile of a firm's debt portfolio:

1. Tax rate: Debt also have different types of structure, zero coupon, fixed coupon, variable coupon, depending on what types of category they fall into, the tax impact varies for different types of debt. Tax impcat can be a major concern for the company portfolio manager as well as the Investor because if not managed wisely the after tax return can be significantly Impacted negatively.
2. Term structure of Interest rate: The term structure of Interest rate is the relationship between the Interest rate or the yield on the bond with different maturity period. Yields normally increase in line with the increase in maturity. Also, there is positive tax impcat for the long term maturity of debt.
3. Volatility of Interest rate: Volatility of Interest rate can seen from from two perspective. In a variable coupon bond, volatility in Interest rate can cause significant Impact for the coupon payment from the company perspective. Also the volatility in the Interest rate causes the bond prices to fluctuate.
4. Firm Creditworthiness: If the Firm has a strong credit reputation in the market, the terms and conditions of the Interest rate can be more favorably negotiated by the company but if the creditworthiness of the firm is not good the firm might have to pay more coupon than the market rate.