Question

• 3. Considering that interest rates today have dropped significantly from the September 2019 timeframe, what would you do as a corporate finance professional with your firm’s capital? From an issuer’s standpoint? From a corporate investment standpoint?

Answer 1

The interest rates have dropped significantly low from a issuer stand point this is a very good opportunity to adjust your cost of capital. Since now if you raise bonds the interest rate applicable would be very low especially for companies with high credit worthiness in the market. The companies who have high credit rating of their securities can issue bonds in the market and restructure their cost of capital in such a way that their overall cost of capital reduces. Issuing bonds at this time you can attract investors also because of the turmoil going on in the market because of which the equity market is not doing very well.

From a corporate investment standpoint, the investors are attracted towards these types of bonds because of the safety of the instruments and return on these instruments is slightly higher than the return on treasury instruments because of which investors are attracted. When the equity market is not performing well then, the many investors choose to allocate a little more portion of their overall portfolio towards the fixed income instruments by investing in these types of bonds the investor can achieve those objectives.