a) The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they...
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a) The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually.
i) How much should you pay for a $1,000 ARA Corporation bond? (5 marks) ii) If you are given RM90,000, how many units of bond can you purchase? (3 marks) iii) What is the yearly interest income for this bond if I purchase it with RM90,000? (2 marks) iv) You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle. (5 marks)
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