Recently the performer David Bowie raised over $55 million by issuing personal bonds, which he agreed to pay off when they mature in ten years. Bowie offered royalty sales from his past album, which asymmetric information problem would exist if Bowie offered royalty sales from future albums as collateral?

Recently the performer David Bowie raised over $55 million by issuing personal bonds, which he agreed to pay off when they mature in ten years. Bowie offered royalty sales from his past album, which asymmetric information problem would exist if Bowie offered royalty sales from future albums as collateral?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter1: Federal Income Taxation—an Overview

Section: Chapter Questions

Problem 63P

See similar textbooks

Similar questions

Bowie bonds were first issued in 1997 when the singer and songwriter David Bowie partnered with Prudential Insurance Company and raised $55 million by promising investors income generated by his back catalog of 25 albums. This is one of the first example of an Asset-Backed Security (ABS) backed by intellectual property (that is, by David Bowie’s royalties). 1. Suppose that the singer Taylor Swift considers a similar deal. Specifically, she plans to obtain $50ml. in exchange for a fixed monthly payment that comes from her royalties over the future 10 years. What is the lowest amount of yearly royalties needed to meet the fixed payment to investors that require a 3% annual return on their investment, and get the first payment 2 months after the issuance date?
Last month Jim purchased $10,000 of U.S. Treasury bonds (their face value was $10,000). These bonds have a 30-year maturity period, and they pay 1.5%interest every three months (i.e., the APR is 6%, and Jim receives a check for $150 every three months). But interest rates for similar securities have since risen to a 7% APR because of interest rate increases by the Federal ReserveBoard. In view of the interest-rate increase to 7%, what is the current value of Jim’s bonds?
A speculator purchased Barclays Bank Ghana Limited corporate bond for ¢500,000. The bond is expected to yield a coupon payment of ¢50,000 per annum for the next 25 years. At the end of this period, it will be necessary to buy a new bond at cost of ¢700,000 at the same coupon rate so that the speculator can still meet his expenditures. Assuming that the coupon rate is the same as the interest, how should the purchaser provide for this future expenditure and what will be the effect on his percentage yield?
Marie Snell recently inherited some bonds (face value R100 000) from her father, and soon thereafter she became engaged to Sam Spade, a University of Florida marketing graduate. Sam wants Marie to cash in the bonds so the two of them can use the money to "live like royalty" for two years in Monte Carlo. The 2 percent annual coupon bonds mature on January 1, 2024, and it is now January 1, 2004. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent. If Marie sells her bonds now and puts the proceeds into an account which pays 10 percent compounded annually, what would be the largest equalannual amounts she could withdraw for two years, beginning today?2.6 Recently, Midrand Hospitals Inc. filed for bankruptcy. The firm wasreorganized as American Hospitals Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to…
Marie Snell recently inherited some bonds (face value R100 000) from her father, and soon thereafter she became engaged to Sam Spade, a University of Florida marketing graduate. Sam wants Marie to cash in the bonds so the two of them can use the money to "live like royalty" for two years in Monte Carlo. The 2 percent annual coupon bonds mature on January 1, 2024, and it is now January 1, 2004. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent. If Marie sells her bonds now and puts the proceeds into an account which pays 10 percent compounded annually, what would be the largest equal annual amounts she could withdraw for two years, beginning today?
Carmen Santiago decided to invest $12,000 in shares of the AT&T company that pays her 5% in dividends each year. In 5 years, she will sell the shares for market value, which she estimates will have increased in value by 1% of their original value. The combined marginal tax rate she applies is 39%. If the inflation rate is 6%, DETERMINE: The internal rate of return before taxes, ignoring inflation
While Jack only pays the interest of the 20,000 TL debt he has taken to repay in 15 years, he also creates a debt payment fund that gains 9% annual value in order to be able to pay the principal at the end of the maturity period. However, from the 7th year, the rate of return of the debt repayment fund rises to 12%. Calculate the decrease in the installment amount paid by Jack to the debt repayment fund due to the increase in interest.
The Bank of Willaine, Inc. issued an obligation to depositors who agree to pay ten (10) percent failsafe for one year. With the funds it acquires, The Bank of Willaine, Inc. can invest in different financial assets like in the stock market. What is the risk if the bank uses the funds it acquired from the depositors to invest in common stock? What liability type does the bank has by issuing that obligation?
Rapi Tulpo invests Php1,000 in a Bank that doubles his money in five years. To what annual interest rate does this correspond assuming that he withdraws the interest each year?
George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $30,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2021, he decided to invest $21,000 in stock and to use the remaining $9,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $30,000 loan. In 2021, George paid $1,800 interest expense on the loan. (Hint: Visit https://www.irs.gov/ and consider IRS Publication 550.) What amount may he deduct as interest in 2021?
Greg owns two debt payments - a payment of $5338 that was due in 11 months ago and a payment of $1694 due in 6 months. If greg makes a payment now, what would this payment be if money is worth 6.96% compunded semi-annually? Assume a focal date of today.
Cesar Moreno is considering entering into an agreement with BDO bank to deposit P1,000 into a special account at the end of the first year. P1,100 at the end of the second year, etc. increasing by P100 each year. At the end of 15 years, he would be able to withdraw a lump sum of P36,000 at what rate would he earn interest, if the interest was compouded anually?