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The Federal Reserve - Essay Example

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The Federal Reserve Name of the Student: Date: Question 1 Indicate the type of debt did Disney offers to the public for sale and discuss the various approaches Disney incorporated to ensure successful marketability of these securities Answer Walt Disney Company also called Disney is an American company in the mass media industry…
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Download file to see previous pages Disney issued its first batch of floating rate notes in the year 2007. Floating-rate notes are debts that reimburse the investors a rate of interest that is reset in every quarter. Disney was one of the companies in the small club, which could sell its debts below the London interbank rate (LIBOR) (First Share, 2008). The floating-rate debt notes assist the companies to trade bonds which are attached to different benchmark other than that of US Treasury. It offers diversity for customers cautious of increasing interest rates. Issuing Floating-rate notes is a way to hedge the risk against the interest rates that arises while abiding to be in corporate. The company also planned to promote stock ownership which is for long-term to the existing as well to the new investors, so they developed an investment plan to offer customers Disney’s common stock which will also provide the existing investors of Disney to re-invest their dividends. Two-year notes were sold by Disney that could yield one basis point in a pan of less than three moths LIBOR. These securities were rated as A2 by the Moody’s Investors Service and Standard & Poor’s rated it as A. The last floaters were sold by Disney was in April 2008. However, the last debt was sold by the company in November, which assisted the company to raise $3 billion. Disney sold their debt at a record amount because the interest rates were the lowest. The company issued bonds amounting to $3 billion and it was the considered to be the fourth part of their coupons. This issue was considered to be the biggest in the 89 years history of the California based company called Burbank (First Share, 2008). Since The Federal Revenue in US has been absorbing around 90 percent of the government bonds, scarcity in treasure can be felt. The Fed as well as the Obama administration assisted the customers as well as Walt Disney by keeping the borrowing cost low, so that the company can raise funds successful from its debt instruments. Apart from this, the company also lured its customers by revealing a strong financial status of the company and a prospect of growth in future. The investors go for acquiring those securities which are readily marketable than the identical assets that are not easily marketable. The genera; cash flow methods cannot be utilized for making securities marketable (Bajaj, Denis, Ferris, & Sarin, n. d.). When securities are not marketable, companies apply a discount to the estimated value for making them acceptable to investors. The concept of marketability lies in the fact that how quick the debt or asset can be converted to near cash or cash, without any transaction cost to be borne by the owner. Even when an individual wishes to convert the common stock into cash, it can be easily done by incurring a minimum transaction cost and there would be minimum impact on the market price (The Walt Disney Company, 2008). Question 2 List the dollar amount of debt Disney proposed to sell to the public. Indicate whether this amount has increased or decreased from 2008 to 2010. Discuss some potential causes of this increase or decrease. Answer It has been already discussed in the first part of the study that Disney issued two-years floating-rate notes which amounted to around $800 million. The company initially planned to offer $500 million, which increase to $800 in the next five years (Gangar, 2013). The last sold floater, which was a three year debenture, amounted to aroun ...Download file to see next pagesRead More
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