RJR Nabisco Holdings Capital Corp 1991 Case Solution

RJR Nabisco Holdings Capital Corp 1991 Case Solution

RJR Nabisco Holdings Capital Corp 1991 Case Solution

RJR Nabisco Holdings Capital Corp 1991 Case Solution

Case Solution

The main difference one of the three investments may be the form by which interest rates are compensated. The discount debentures don' pay any interest until May 15, 1994, as the 13.5% debentures still pay uniform cash interest through its existence. After May 15, 1994, the deferred-coupon and pay-in-kind bonds become identical, having to pay 15% cash interest, whereas the straightforward debentures pay a lesser rate of interest of 13.5%. Therefore, the deferred-coupon debentures tend to be more valuable compared to cash-having to pay debentures after May 15, 1994.

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