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oyota Motor Credit Corp (TMCC) a subsidiary of Toyota Motor offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, TMCC promised to repay the owner of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC payment 30 years later.

Toyota Motor Credit Corp (TMCC) a subsidiary of Toyota Motor offered some securities for sale to the public on March 28, 2008. Under the terms of the deal, TMCC promised to repay the owner of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC payment 30 years later. Such a security, for which you pay some amount today in exchange for a promised lump sum to be received at a future date, is about the simplest possible type. Is giving $24,099 in exchange for $100,000 a good deal? On the plus side, you get back $4 for every $1 you put up. That probably sounds good; but on the down side, you have to wait 30 years to get it. What you need to know is how to analyze this trade off.
a) Why would TMCC be willing to accept such a small amount today in exchange for a promise to repay about four times that amount in the future?
b) TMCC has the right to buy back the securities on the anniversary date at a price established when the securities were issued (this feature is a term of this particular deal). What impact does this feature have on the desirability of this security as an investment?
c) Would you be willing to pay $24,099 today in exchange for $100,000 in 30 years? What would be the key considerations in answering yes or no? Would your answer depend on who is making the promise to pay?
d) Suppose that when TMCC offered the security for $24,099, the US Treasury had offered an essentially identical security. Do you think it would have had a higher or lower price? Why?
e) The TMCC security is bought and sold on the New York Stock Exchange. If you looked at the price today, do you think the price would exceed the $24,099 original price? Why? If you looked in the year 2019, do you think the price would be higher or lower than today’s price? Why?

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