CORPORATE FINANCE
Seminar 2:
1. There are two additional files on Minerva for this question. These files are taken
from the data archive of the Financial Times for 2 October 2009 and 3 October 2014.
Use data from the “Over Fifteen Years” category of Gilts in these files to answer the
following questions:
(i)
What is the price, coupon, interest (or current) yield and redemption yield (or
yield to maturity) for Tr 4.5pc ’42 at both dates?
(ii)
Why are the redemption yields different in 2009 and 2014?
(iii)
What are the ranges of coupon rates, interest yields and redemption yields
for all bonds within the “Over Fifteen Years” category on 2 October 2009?
Comment on these ranges.
(iv)
See the exhibits below. These show that on 2nd October 2021 the Tr 4.5pc ’42
had a closing price of £157.91 and the redemption yield was 1.35%. Why is
the price in 2021 even higher than that in 2014, while the redemption yield is
lower?
2. What are the reasons why debt capital in a firm typically has a lower cost of capital
than does equity capital in the same firm? Will debt capital in a firm always have a
lower cost of capital than equity capital in a different firm? Why or why not?
3. To what extent is it in the interest of the shareholders of publicly quoted companies
to link the rewards of managers to the financial performance of the company?