Currently, Alam Megah Berhad is looking to built up a sizable investment portfolio and have always had a major portion of its investments in fixed-income securities. Alan Zecha, A CEO of the company adhere to fairly aggressive investment posture and actively go after attractive current income and substantial capital gains.

Alans first investment decision involves a short-term trading opportunity. In particular, the company has a chance to buy a Jojo bond, 7.5%, 25 years bond and has issued 5 years ago. Currently priced at RM850 to yield 9%; he feels that in two years the promised yield of the issue bond should drop to 8%. Another local bond is Khazanah bond, 8%, 20 years bond, yield-to-maturity 7%, currently priced at RM950.

The second is a yankee bond. Alan wants to improve both current income and yield-to-maturity, and currently is considering one of three issues as follows (a) Lehman Corporation bond issued in UK, 7%, 10 years bond, currently priced at RM785 with AAA rating. (b) Itoshi Corporation bond issued in Japan, 10%, 15 years bond has issued 3 years ago, currently priced at RM1100 with AA rating and (c) Tohoku Corporation bond issued in Seoul, 6%, 12 years bond, currently priced at RM95 with A rating. All these bonds are comparable quality and have comparable issue characteristics.

1. Calculate the value of Jojo bond and Khazanah bond. Is it worth for the company to invest in these two bonds? Why?

b.Evaluate Lehmans, Itoshis and Tohokus yield-to-maturity. Which bond(s) is/are traded at premium/discount/par value? Proof your answers with calculations.

c.Conclude the investments made by Alam Megah for both local bonds and yankee bonds and propose to Alan which bond(s) the company should invest more.

d.Compare between yankee bond and Eurobond with 1 (ONE) example of each.