FINA 201 – SI Session

19 April 2024

Questions

1. You were recently at a family reunion in Kimberley. Your cousin attends a nearby
university, and missed her Finance 2 lectures on bonds, due to illness. She has asked
you to help her. You look in a current business publication, and use the following two
bonds as examples:
Eskom El 68
Maturity Date: 2032
Face Value: RI 000
Coupon Rate: 11% (coupons paid semi-annually
YTM: 14%
Eskom El 70
Maturity Date: 2028
Face Value: RI 000
Coupon rate: 13.50% (coupons paid annually)
YTM: 15.3%
Required:
(a) Explain to your cousin the meaning of the following terminology:
➢ maturity date
➢ face value
➢ coupon rate
➢ YTM.
(b) Show her how bonds are valued by valuing the El 68.
(c) The price of a bond is sensitive to interest rate changes. Compare the two
bonds, with regard to their relative interest rate sensitivity

2. Using your financial calculator, calculate the value of a R5 000-par-value bond with
a coupon rate of 10% and 10 years to maturity, if the coupons are paid quarterly and
the required return on similar-risk bonds is currently 12%.
3. If the required return on similar-risk bonds is 14%, calculate the value of a bond
maturing in six years, with a R1 000 par value and a coupon rate of 10%, with interest
paid semi-annually.

4. Calculate the value of a R100 debenture in each of the circumstances detailed

below. The debenture pays a coupon rate of 11% and the required rate of return is
9% per year.
(a) In perpetuity
(b) Redeemable in 6 years’ time at par
(c) Redeemable in 6 years’ time at a premium of 10%
(d) Purchased one year ago at a discount of 10% and redeemable in four years’
time at par.