Question

As a recent graduate of UB you were hired an analyst in the finance department of Sun and Sea Investment Company., a new firm in a profitable but risky high-tech business. Several growth opportunities have presented themselves recently, but the company doesn't have enough capital to undertake them. Stock prices are down, so it doesn't make sense to try to raise new capital through the sale of equity. The company's bank would not lend it any more money than it already has, and investment bankers have said that debentures are out of the question. The treasurer has asked you to do some research and suggest a few ways in which bonds might be made attractive enough to allow Flyover to borrow. Write a brief memo summarizing your ideas.Immersive Reader (10 Points)

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

The company can try issuing bonds with embedded options.

1. Puttable bond seems possibly a good solution for it.

Puttable bonds:
This is a fixed rate bond with an embedded put option i.e right to sell enjoyed by an investor.

Thus a 20 years bond may be Puttable in 5 years.
Investors can exercise the put option, if the interest rate rises.
Such that he can get his money back & Invest elsewhere at a higher rate.

Here INVESTORS ENJOY THE RIGHT.

So it will be easy for the company to issue such a bond & improve its financial conditions.

Also, the yield/interest payment on bond is also less.

2. Hybrid Securities like optionally convertible bonds.
Which is a special type of bond where investors enjoy the option
1. Convert the bond into shares.
2. Treat the bond as non-convertible and hold it till maturity.
Obviously, investors will exercise the conversion option, if the share price rises.

Such type of securities will help find the money it needs for its expansion & growth.