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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 yieldto maturity based on Sirius current bond rating. To prepare this information, you will have to determine Sirius’ current debt raring and the yield for their particular rating.In Excel create a timeline with the cash flows and discount rates you will need to value the new bond issue.a. To create the required spot rates For Sirius’ issue add the appropriate spread to the Treasury yield of the same maturity.b. The yield curve and spread rates you have found do not cover every year thatyou will need for the new bonds- Specifically, you do not have yields orspreads for four-, six-, eight-, and nine-year maturities, Fill these in bylinearly interpolating the given yields and spreads. For example, the fouryearspot rate and spread will be the average of the three- and five-year rates.The six-year rate and spread will be the average of the five- and seven-yearrates. For years eight and nine you will have to spread the differencebetween years seven and ten across the two years.c. To compute the spot rates for Sirius’ current debt rating, add the yield spreadto the Treasury rate for each maturity- However, note that the spread is inbasis points, which are 11100th of a percentage point.
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