You are an intern with Sirius Satellite Radio in their corporate finance division…. 1 answer below »

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You are an intern with Sirius Satellite Radio in their corporate finance division. The

firm is planning to issue $50 million of 12% annual coupon bonds with a ten-year

maturity. Your boss wants you to determine the price of the bond and the initial yield

to maturity based on Sirius current bond rating. To prepare this information, you will

have to determine Sirius’ current debt rating and the yield for their particular rating.

1. Begin by finding the current U.S. Treasury yield curve. You can use the Treasury

Web site (www.treas.gov), search using the term ‘yield curve” and select “US TreasuryDaily Treasury Yield Curve.” Beware. There will likely be two links with the same title.

Look at the description below the link and select the one that does NOT say ‘Real Yield’.

You want the nominal rates. If you could not find this data, use the screen shot at the

end of this document. Record the current yield that corresponds to the maturity of Sirius

bond.

2. Find the current bond rating for Sirius, Go to Standard & Poor’s Web site

(www.standardandpoors.com). Select “Find a Rating” from the list at the left of the

page, then select “Credit Ratings Search.” At this point you will have to register (it’s

free). Next you will be able to search by Organization Name-enter Sirius and select

Sirius Satellite Radio. Use the credit rating for the organization, not the specific issue

ratings. If you could not find this data, use the screen shot at the end of this document.

3. Find the current yield spreads for the various bond ratings. use the screen shot at the

end of this document. However, note that the spread is in basis points, which are 1/100th

of a percentage point.

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