a. Bank Y Ltd has just listed a 15 year annual bond with a coupon rate of 12.5% p.a. on the bond market of the JSE Ltd. Its face value is R1m. If the the current Yield to Maturity for the bond is 14%, what is the price of this bond?

(5 marks)

b. The COVID-19 crisis led to a crash in the value of all financial assets including fixed rate government bonds as investors move their assets to safer assets like cash. What would you expect to happen to the yield to maturity (YTM) of these bonds in this case? Explain why this will happen.

(4 marks)

c. Explain what type of a bond you might prefer to be holding in such a crisis. In your answer differentiate firstly, between different types of fixed rate bonds; and then secondly, between fixed and variable rate bonds.

(6 marks)