You are the Vice-President of Mayan Corporation with P600 million to invest in long-term bonds. You can purchase highly rated municipal bonds with a 6% coupon rate and maturities of 10 or 20 years, or highly rated corporate bonds with an 8% coupon rate and similar maturities. However, you need the funds back in 5 years. While the corporate bonds have a higher coupon rate, the municipal bonds may be preferable since you need to sell the bonds before maturity and municipal bonds may be more liquid and easier to sell.
You are the Vice-President of Mayan Corporation with P600 million to invest in long-term bonds. You can purchase highly rated municipal bonds with a 6% coupon rate and maturities of 10 or 20 years, or highly rated corporate bonds with an 8% coupon rate and similar maturities. However, you need the funds back in 5 years. While the corporate bonds have a higher coupon rate, the municipal bonds may be preferable since you need to sell the bonds before maturity and municipal bonds may be more liquid and easier to sell.
You are the Vice-President of Mayan Corporation with P600 million to invest in long-term bonds. You can purchase highly rated municipal bonds with a 6% coupon rate and maturities of 10 or 20 years, or highly rated corporate bonds with an 8% coupon rate and similar maturities. However, you need the funds back in 5 years. While the corporate bonds have a higher coupon rate, the municipal bonds may be preferable since you need to sell the bonds before maturity and municipal bonds may be more liquid and easier to sell.
You are the Vice-President of Mayan Corporation, a financing
company. You plan to invest the company funds in long-term bonds. You have P600 million to invest in. You may purchase highly rated municipal bonds at par with a coupon rate of 6%. Moreover, you also have a choice of maturity between 10 years or 20 years. Alternatively, you could purchase highly rated corporate bonds at par with a coupon rate of 8%. These bonds also are offered with maturities of 10 years or 20 years. You do not expect to need the funds for five (5) years. At the end of the fifth year, you will sell the bonds because you will need to make a large purchase at that time. If the level of credit risk and the liquidity for the municipal and corporate bonds are the same, would you invest in the municipal bonds or the corporate bonds? Why?