Department of Finance

University of Ghana Business School

2022/2023. FINC 302: Business Finance
Assignment 1
Submission deadline: 5th June 2023

1. Oil Well Supply offers 7.5 percent coupon bonds with semi-annual payments
and a yield to maturity of 7.68 percent. The bonds mature in 6 years. What is
the market price per bond if the face value is GHS 1,000?
[5 marks]

2. The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding
with a GHS 1,000 par value. The bond has a yield to maturity of 5.5 percent. If
the market yield suddenly increases to 6.5 percent, what will happen to the
bond price? [5 marks]

3. Blackwell bonds have a face value of GHS 1,000 and are currently quoted at
98.4. The bonds have a 5 percent coupon rate. What is the current yield on
these bonds? [5 marks]

4. One year ago FINC 301 issued 15-year, noncallable, 7.5% annual coupon
bonds at their par value of $1,000. Today, the market interest rate on these
bonds is 5.5%. What is the current price of the bonds, given that they now
have 14 years to maturity? (5 Marks)

5. UGBS’s 15-year bonds have an annual coupon rate of 9.5%. Each bond has
face value of $1,000 and makes semiannual interest payments. If you require an
11.0% nominal yield to maturity on this investment, what is the maximum price
you should be willing to pay for the bond? (5 Marks)

6. James Corporation's noncallable bonds currently sell for $1,165. They have a
15-year maturity, an annual coupon of $95, and a par value of $1,000. What is
their yield to maturity? (5 Marks)
Examiner: Professor Godfred A. Bokpin; GA: Mr. Michael O. Amponsah Page 1 of 4
 7. FINC 302 is a long-term debt where the face amount of each bond is GH¢
1,000. The coupon rate is 20% to be paid semi-annually. The 5-year risk-free
rate is 20% p.a. It is estimated that the risk premium appropriate to company Y
is 6 percentage points (10 Marks).

8. Briefly describe the following types of bond for 5 marks each

i. Callable bonds and under what circumstances would the issuer make a
call
ii. Eurobonds
iii. Global bonds
iv. Samurai bonds
v. Zero-coupon bonds
vi. Green bonds
vii. Foreign bonds
viii. Bulldog Bonds
ix. Yankee Bonds
x. Dual-Currency Bonds
xi. Composite Currency Bonds

9. Sometimes’ bonds currently sell for GHS 1,150. They have a 6.75% annual
coupon rate and a 15-year maturity and are callable in 6 years at GHS 1,067.50.
Assume that no costs other than the call premium would be incurred to call
and refund the bonds, and also assume that the yield curve is horizontal, with
rates expected to remain at current levels on into the future. Under these
conditions, what rate of return should an investor expect to earn if he or she
purchases these bonds, the YTC or the YTM?

10. (a) ABC bank purchased a Bank of Ghana bond which pays a semi-annual
annual coupon of 25% with the face value of GHS 10m. Calculate its price if
the current yield on the same 5-year bond is 16%. (5 Marks)
(b) XYZ bank purchased a Bank of Ghana bond that pays an annual
coupon of 19% in January 2010. The face value of the bond is GHS 5m. What
is the duration of this bond if the yield to maturity on the bond is 15%? (5
Marks)
(c) A. U.S. government bond with a 6 3/8% coupon that expires in
December 2020. The bond was issued on January 1, 2016, and the required
Examiner: Professor Godfred A. Bokpin; GA: Mr. Michael O. Amponsah Page 2 of 4
 annual yield is 5%. The Par Value of the bond is $1,000. Coupon payments are
made semi-annually (June 30 and December 31 for this bond). Find the price
of the bond.
(d) A Bond may either trade at a premium, par, or a discount. Discuss the
conditions under which a bond will trade at par, a premium or a discount.

11. The Board of Directors of ABC Bank, a wholly owned Ghanaian Bank is
worried about the solvency of the bank due to its holdings of Government of
Ghana (GoG) domestic bonds to the tune of GHS 500m and the GoG
Domestic Debt Exchange Program (DDEP). At a recent Board meeting, they
tasked the Country Risk Officer and the Treasurer of the Bank to assess the
impact of the recent GoG Domestic Bond Exchange Program (DDEP).
After gathering the required data, the Treasurer has come up with the following table:
Items Old Bond New Bond
Tenor 3 years 8 years
Coupon 19.0% 9.0%
Discount Rate 16% 16%
Face Value GHS 100m GHS 100m
Coupon Payment Semi-annual Semi-annual
Frequency

As a newly employed in the Treasury department, you have been tasked to estimate
the following:
1. The Present Value of the Current Bond (5 Marks)
2. The Present Value of the New Bond Received after the DDEP (5 Marks)
3. The inherent haircut Bank ABC experienced by tendering the bond for
exchange (5 Marks).
12. Consider a 3-year 10% coupon bond with a face value of $100. Suppose that
the yield on the bond is 12% per annum with continuous compounding. Find

Examiner: Professor Godfred A. Bokpin; GA: Mr. Michael O. Amponsah Page 3 of 4

 the price of the bond. What is the approximate price of the bond when yields
change by 10 basis points? Note: 100 basis points is equal to 1%
13. Bonds may either trade at a premium, par or a discount. Discuss the conditions
under which a bond will trade at par, a premium or discount

Examiner: Professor Godfred A. Bokpin; GA: Mr. Michael O. Amponsah Page 4 of 4