Question

Newcastle Coal Co. (NCC) recently offered a bond issue in which the bonds can be surrendered prior to maturity in exchange for cash if the company undertakes certain specified actions or if specified events occur. This is an example of what type of bond? Jackson County wants to renovate a local municipal park. The county commissioners think that the renovations will help attract more people to its facilities (including an aquatic center and tennis courts). There are fees attached to using these facilities, and the commission is confident that the additional revenue will more than justify these improvements. The county wants to issue bonds to pay for the renovations, and the bondholders will be paid from the cash flow generated by the park. This is an example of what type of bond? Last year, Newcastle Coal Co. (NCC) sold an issue of bonds that are secured by the firm’s real property and real estate. Under the terms of the issue’s indenture, however, in the event of default, bondholders will not receive any proceeds of the sale of the underlying collateral until the company’s first (or senior) bondholders are paid. What type of bonds did Newcastle Coal Co. (NCC) issue last year? Daniel and Ashley are retired and rely on their investments to generate income to live on. Naturally, they are very worried about losing purchasing power due to inflation and would really like an investment that protects their purchasing power. Which debt security would help them accomplish this goal?

Answer 1

1) A bond issue in which the bonds can be surrendered prior to maturity in exchange for cash if the company undertakes certain specified actions or if specified events occur. This is an example of callable bond because it gives the the bonds are surrendered due to specific action by the company to call back the bond.

2)Jackson County wants to renovate a local municipal park. The county commissioners think that the renovations will help attract more people to its facilities (including an aquatic center and tennis courts). There are fees attached to using these facilities, and the commission is confident that the additional revenue will more than justify these improvements. The county wants to issue bonds to pay for the renovations, and the bondholders will be paid from the cash flow generated by the park. This is an example of Muncipal bond which will be issued by the Jackson county.

3)Newcastle Coal Co. (NCC) sold an issue of bonds that are secured by the firm’s real property and real estate. Under the terms of the issue’s indenture, however, in the event of default, bondholders will not receive any proceeds of the sale of the underlying collateral until the company’s first (or senior) bondholders are paid. The type of bonds did Newcastle Coal Co. (NCC) issue last year is Collateralized Debt Obligations.

4) Daniel and Ashley are retired and rely on their investments to generate income to live on. Naturally, they are very worried about losing purchasing power due to inflation and would really like an investment that protects their purchasing power. The debt security which would help them accomplish this goal is Treasury Inflation Protected Securities (TIPS) which can be used for the given case for protection against purcasinng power.