Ford Motor Credit Company has issued a bond with the following details:
Amount: $7.4 billion
Coupon Interest Rate: 4.00%
Coupon Frequency: Semi-annually
Maturity Date: 06/20/2027
Call Date & Call Price: 6/20/2018 @$100.00
Current Bid Price: $97.05
Current Offer Price: $98.05
Credit Rating: Baa2 (Moody’s)/BBB(S&P)
Credit Spread: 220 basis points
Treasury Yield Curve:
Date 1 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
03/29/18 1.65 1.73 1.95 2.12 2.28 2.41 2.59 2.72 2.77 2.89 3.01
Questions:
What is the yield to maturity if you purchase the bond? What is the yield to maturity if you sold the bond?
What is the yield to call if you purchase the bond?
What is the yield to worst?
What would be the impact to the price of the bond if all interest rates rise 100bps and fall 100bps? What would be the impact on the coupon interest paid on this bond?
Why did the company add a call date to this bond? How can the call date affect the bondholders and the company? If you were the CFO of Ford would you call the bonds?
What is the impact to the company and the bondholders if the credit rating goes up and if it goes down?