An Investigation for Bond Refunding

Killian's probability distribution provides a discount rate of 10%. Refunding now, instead of refunding later will be financially very good for ones company. Producing the bonds callable in 5 years will protect against interest rate risk.

If the probability distribution of expected future interest rates was "tight" rather than "flat," i.e., if it had a smaller typical deviation, would this have any effect over a choice to refund now versus waiting? Assume the same expected interest rate in either case. Also, would a skew for the appropriate or a skew for the left, within the exact same expected rate, make you additional possibly to recommend an immediate refunding?

A tight probability distribution would aid financing now because 1 would assume that the interest rate would not improve dramatically. A skew towards the proper would support the argument for immediate refunding.

Leases are sometimes written so how the lessee makes payments at the end of every year rather than in advance. If the lessor structured the analysis with deferred payments, how would this affect (a) the NAL during the lessee's standpoint and (b) the rate of return earned by the lessor? Could the lease payments be adjusted, if they have been produced on a deferred basis, to make the same NAL as existed once the payments have been made in advance?

The payment would likely be set at the high end with the range. The reason is that Lonestar has less room for pricing maneuvers than is genuine for Agro-Chem.

 

 

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