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Case study A Call to Guernseyby Professor Ian H. GiddyNew York University You are the
assistant manager
of the international bond syndicate desk
of Crédit Suisse in Zurich. The manager of a Trust in the
Channel
Islands telephones you. He is interested in investing in a US dollar
denominated
Eurobond, and wants to get a good yield. You tell him about some new
issues
that are available, but note that some of them are callable. He says
that's
okay, as long as he's getting good value for his money. He asks you to
fax him a list of bonds currently available.
An hour later he calls you.
He has studied the fax and
identified three
bonds that are satisfactory credits for his Trust and seem to offer
decent
yields. But he would like your advice in deciding which of the three
offers
the best value for money.
The three bonds are: A 4-year Sony
Eurodollar bond paying 9.1%, callable at
102 in two years.
A 4-year BASF Eurodollar bond paying 9.3%, callable at 101 in three years. A 4-year SNCF noncallable Eurodollar bond, paying 8.7%. All the bonds are priced at par. Please explain the method you would use to compare the value of the three bonds from the investor's point of view. To help you some information about conditions in the bond market and in the Treasury bond options market is given below.
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