a. Consider two 20 years bond with annual coupon payments. Bond A has an 8 percent coupon rate and bond B has a 4 percent coupon rate. If the market yield to maturity is 5 percent:

1. Calculate the price of each bond assume a RM100,000 face value.

(6 marks)

2. Identify the bonds was traded at premium, par or discount.

(2 marks)

b. Consider a 30 years, zero-coupon bond with a yield to maturity of 5 percent. If the bond is issued with a face value of RM 500,000.

1. Calculate the price of the bond.

(3 marks)

2. Suppose interest rate suddenly rise so that investors now demand an 8 percent yield to maturity before they invest in this bond. Calculate the price of the bond now with the new yield.

(3 marks)

3. Describe the relationship of the bond yields to price of bond.

(2 marks)