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Question 3 A. An institutional investor, Mason Limited, is planning to purchase a straight Eurobond...

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Question 3 A. An institutional investor, Mason Limited, is planning to purchase a straight Eurobond in order to include it in the investment portfolio. Mason receives following information: Current Eurobonds in the Euromarkets are trading at a yield of 8% per annum. An existing Eurobond with a face value of USD 100000 pays 10% per annum half yearly coupons. The bond Mason is considering will mature on 31 December 2024. i. If Mason purchases the bond on 20 May 2019 and the last coupon on the bond was paid on 31 December 2018, what should be the price that Mason should pay for this bond? [5 marks] ii. Why is the price at 20 May 2019 different from the price Mason should have been paid if it purchased the bond at 01 January 2019? [1 mark] B. Assume that you are an executive at the credit division at Mercury Finance Limited. During weekly meeting, your department head, Kyle, suggested that Mercury should never consider securitising Car Loan products. Respond to Kyle by explaining two benefits and two costs of securitising car loans. [4 marks]

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