On March 28, 2018, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor, offered some securities for sale to the public. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $100,000 on March 28, 2048, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they gave up $24,099 on March 28, 2018, for the promise of a $100,000 payment 30 years later.

In our opening case study, why would the Toyota Motor Credit Corporation (TMCC) be willing to accept such a small amount today ($24,099) in exchange for a promise to repay about 9 times that amount ($10,000) in the future (30 years)?

Because they understand that the present value of $100,000 is same or lower than current $24,099 if discounting rate  ≥  4.86%

Explanation:

To find this discounting rate we solve this equatiation:  

Present value of $100,000 payment 30 years ≤ $24,099

$100,000/(1+rate)^30 ≤ $24,099

↔ (1+rate)^30 ≥ 100,000/24,099

↔ (1+rate)^30 ≥ 4.15

↔ (1+rate) ≥ 4.15^(1/30)

↔ (1+rate) ≥ 1.05

↔ rate ≥ 1.0486 – 1

↔ rate ≥  0.0486

↔ Rate ≥ 4.86 %

a naked warrant, also known as a covered warrant, is a derivative that allows the holder to buy or sell a security, such as a bond or share. unlike a normal warrant, it is not attached to a newly issued bond or preferred stock.

unsecured bonds: they are not secured by a specific asset, but rather by "the full faith and credit" of the issuer. in other words, the investor has the issuer's promise to repay but has no claim on specific collateral. debt, such as unsecured bond debt, is said to be “subordinated,” or junior, to secured debt.

its ii) i did this test

explanation: