sorry for the small print Proctor and Gamble\'s total amount of debt increased f

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sorry for the small print

Proctor and Gamble's total amount of debt increased from 31.9% in March 2011 to 34.2% in December 2011, mainly due to its net debt issuances to fund general corporate purposes. What was the annual cost of the funds to P&G; raised from the $1.0 billion bonds that mature in 2014? basis points. If the bond sold at 100.10 at the time of issue, investors observed that required annual yield would be Looking at the comparable U.S. Treasury yield, these bonds were issued at a spread of basis points. Because the coupon rate is the yield required by the market, the bond sold at at the time of issue. If the new observed yield of the bond is 1.8%, the bond is likely to be trading at a price of If the current yield is higher than the coupon rate, investors would want a higher return on their investment. If the coupon rate is less than the yield required by the market, the price of the bond is most likely to be the par value of the bond, and the bond will sell at As interest rates increase, the yield required by the market will increase, and the price of the bond is likely to Thus, when the yield increases to 1.8%, the bond's price by

Explanation / Answer

as per the rule, I am required to answer first four parts only.

We can see coupon rate on new issue is 0.70% . In basis point term, it will be 70 basis points.

Here the bond is sold at the premium (i.e. price is greater than 100), therefore required annual yield would be lower than coupon rate.

Two year treasury rate is 0.19% and these bonds were issued for 0.70%, therefore spread is:

Spread = 0.70% - 0.19% = 0.51%

Coupon rate is higher than the yield required by the market. Therefore, the bond is being sold at a premium at the time of issue.

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