Assume it is 1 January 2017. A UK based investor has researched two possible bond investments, but an intermittent printer fault has caused some important information to be missing from the printout. The latest coupon on each bond has just been paid. Each bond has a face, or par, value of £1000. The investor assumes that each bond pays coupons annually.

Bond	Coupon rate	Maturity	Current price	Yield to maturity
ABC	6.50%	31 December 2022	?	5.50%
XYZ	4.45%	31 December 2024	£838.45	?

• i.Complete the table by calculating the current price of bond ABC (4 marks) and yield to maturity of bond XYZ (6 marks).
• ii.The investor subsequently realises that the printer had not detailed the fact that the ABC bond makes semi-annual coupon payments. Recalculate the current price of the ABC bond. (6 marks)

Part (b)

Holefoods plc, a UK based company wants to invest £1,500,000 for a three-year period. Inflation is currently 1.5% per annum and is expected to remain at this rate for the foreseeable future. The choice is between two possible investments. Over recent years, the frequency distribution of the actual returns achieved by the two investments has been observed, but there is no information available about the correlation between the two investments.

Investment R

Annual rate of return	Probability
8%	22%
10%	28%
12%	24%
14%	26%

Investment S

Annual rate of return	Probability
1%	40%
9%	12%
18%	8%
35%	40%

i.Calculate the expected rate of return and the standard deviation of the expected return for each of the investments.

ii.Advise Holefoods how to choose between the two investments. Should Holefoods give any consideration to splitting their investment between the two investments? Justify your recommendation.