1. Calculate the price of a bond with Face value of bond is $1,000 and: a. Bond...

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Finance

1. Calculate the price of a bond with Face value of bond is$1,000 and:
a. Bond yield of 8.4%, coupon rate of 7% and time to maturity is5 years. Coupon is paid semi-annually (Bond 1)
b. Bond yield of 7%, coupon rate of 8% and time to maturity is 4years. Coupon is paid semi-annually
c. Calculate the price of Bond 1 right after the 5th couponpayment.
2. Arcarde Ltd issues both ordinary shares and preference sharesto raise capital, in which 500,000 ordinary shares have been issuedat the price of $10 and 100,000 preference shares with a par valueof $100.
a. Company promises to pay an annual dividend rate of 6.5% pershare for its preference shares. If similar investment has a rateof return of 10% p.a, what is the fair price of Arcarde’spreference share?
b. Company also plans to pay dividend for its ordinary shares asfollow: Y1 (next year): $0.8; Y2: $1; Y3: $1, after year 3, thedividend will growth at the rate of 3% and company’s rate of returnis currently 9%, what should be the fair price of each ordinaryshares?
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4.0 Ratings (601 Votes)

1 a Bond Yield 84 per annum or 842 42 per half year Coupon Rate 7 per annum payable semiannually Maturity 5 years or 5 x 2 10 halfyears Face Value 1000 SemiAnnual Coupon 1000 x 007 x 05 35 Bond Price See Answer

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1. Calculate the price of a bond with Face value of bond is$1,000 and:a. Bond yield of 8.4%, coupon rate of 7% and time to maturity is5 years. Coupon is paid semi-annually (Bond 1)b. Bond yield of 7%, coupon rate of 8% and time to maturity is 4years. Coupon is paid semi-annuallyc. Calculate the price of Bond 1 right after the 5th couponpayment.2. Arcarde Ltd issues both ordinary shares and preference sharesto raise capital, in which 500,000 ordinary shares have been issuedat the price of $10 and 100,000 preference shares with a par valueof $100.a. Company promises to pay an annual dividend rate of 6.5% pershare for its preference shares. If similar investment has a rateof return of 10% p.a, what is the fair price of Arcarde’spreference share?b. Company also plans to pay dividend for its ordinary shares asfollow: Y1 (next year): $0.8; Y2: $1; Y3: $1, after year 3, thedividend will growth at the rate of 3% and company’s rate of returnis currently 9%, what should be the fair price of each ordinaryshares?Show all working out and equations