高级公司金融long-termdebt(编辑修改稿)

高级公司金融long-termdebt(编辑修改稿)内容摘要：

ll provisions  Call provisions give issuers the option to redeem the outstanding bonds at a price lower than the market price of the bonds. Should the firms always issue callable bonds? Rational investors will incorporate the effect of call provision into the valuation.  They will demand higher coupon rates on callable bonds than on noncallable bonds. An Example Kraus Intercable Company intends to issue perpetual bonds of $1000 at a 10 percent interest rate. Annual coupons have been set at $100. There is an equal chance that by the end of the year interest rates will do one of the following: (1) Fall to 62/3 percent. If so, the bond price will increase to $1500. (2) Increase to 20 percent. If so, the bond price will fall to $500. Suppose investors are risk neutral. What are the prices for noncallable bonds and callable bonds respectively? Noncallable Bond (Example) Value of Noncallable bonds Firstyear coupon + Expected price at end of year 1 + r $100 + ( * $1500) + ( * $500) 1 + r = = $1000 Callable Bond (Example) Suppose the Kraus Intercable Company can also issue callable bonds with call premium of $ 100 (call price, $ 1100). The bond can be called only at the end of the first year. The incentives of the pany at the end of first year.  When interest rate falls to 62/3 percent, the bond is worth $1500. The pany will call the bond at $1100.  When interest rate rises to 20 percent, the bond is worth $500, the pany will not call the bond. Value of Callable Bond (Example) Rational investors know that they will get $1100 + $100 if interest falls, and $100/ + $100 if interest rises. If the firm issues callable bond, the value of callable bond is only $. ($1100 + $100) * + ($100/ +$100) * 1 + = $ Required Coupon Rate of Callable Bond If the pany still want to raise $1000 for each callable bond it issues, the investor will require a higher coupon rate C. ($1100 + C) * + (C/ +C) * 1 + = $1000 C = $ The Paradox To issue a bond of market value $1000, Kraus can either issue noncallable bond with coupon $100, or callable bond with coupon $ and call price $1100. Both Kraus and the investors are indifferent with the two alternatives. Why are callable bond issued in the real world? Potential Explanations for Callable Bond Superior Interest Rate Forecasting  Corporate insiders may know more about the discount rate (default risk premium) for the bond issued than investors.  Problems of this argument: – Rational investors can also expect this opportunistic behavior and require a even higher coupon rate. – Corporate may not know the risk free rate more than the public investors. Taxes  Call provisions may have tax advantages if the bondholder is taxed at a lower rate than the pany. Future investment opportunities  Protective covenants could be sufficiently restrictive and prevent the firms from taking arising investment opportunities. Less Interest Rate Risk Calling Bonds: When does It Make Sense? To maximize shareholder’s value firms issuing callable bonds should call the bonds once the market value of the bonds exceeds the call price. It is observed that many firms do not call the bond when the market value of the bonds is just slightly higher than the call price. The issui。