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Delia Company, a multinational company, on January 1, this year, issued a 12% coupon interest rate, 10-year bond with a $1,000 par value that


 

Delia Company, a multinational company, on January 1, this year, issued a 12% coupon interest rate, 10-year bond with a $1,000 par value that pays interest annually. Investors who buy this bond receive the contractual right to two cash flows, annual interest at the end of each year, and the $1,000 par value at the end of the tenth year. The prevailing interest rate in the market is 6 percent. Assuming that investors required return is 4 percent above the market rate, determine the fair price of the bond. Determine if it is worth buying stock if the current market price is a) RM988, b) RM1,000 c) RM1,100 or d) RM1,200.

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