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Suneview Ltd., a listed public company with actively tradedsecurities, issued debentures with a total term of fifteen yearsand a face value of $1,000 to the public exactly five years ago for$1,000 each. The debentures were issued at an annual couponinterest rate of 12% p.a. with payments annually in arrears.Interest rates for debentures of a similar risk to those ofSuneview Ltd. are currently (five years after originally beingissued) being traded at a premium of 3% above the government bondrate. A new series of government bonds (Series XXIV) were issuedtoday for a ten-year term at an annual coupon interest rate of 5%p.a. (with payments annually in arrears), a face value of $1,000and a yield to bondholders of 7% p.a. Required:

1. Assume that a further three years has elapsed since thecalculations undertaken in part a) of this question (a total ofeight years after the original debenture issue) and the premium onSuneview Ltd. debentures has increased to 5% above the governmentbond rate. No further government bonds have been issued sinceSeries XXIV bonds which closed trading today at a yield of 9%p.a.

1. How much would you now (a total of eight years after theoriginal debenture issue) pay for Suneview Ltd. debentures?
2. Briefly discuss the possible ‘real-world’ factors that may havecaused the differences in the premium on Suneview Ltd. debenturesas compared to the government bond rate (from 3% to 5%).