Professional Documents
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Question 1.
David Brown seeks your advice on making bond investments. He provided you the
following information:
i. Calculate the value of both bonds if the required rate of return is 8%.
ii. Suggest, with reason, which bond Mr Brown should purchase.
iii. If the market interest rate is currently at 11%, which bond is likely to be called?
Explain.
Question 2.
a) Calculate the current yield for Alam Aman Bhd if the market price of the bond
is RM1100.
b) Determine the yield to maturity for Alam Aman Bhd if the market price of the
bond is RM1100.
Question 3.
Golden Finance has just purchased a 10%, 15-year bond for RM83. The bond
has a par value of RM100. Golden Finance expects to sell the bond in 5 years
time when the yield to maturity is 12%. At that point in time, what will the
selling price be? Assume interest is paid semi-annually.
Question 4.
Assume that you pay RM850 for a long-term bond that carries a 7.5% coupon.
Over the course of the next 12 months, interest rates drop sharply. As a result,
you sell the bond at a price of RM962.50. Determine the current yield of this
bond by the end of 1 year.