1. Explain the companys decision in each of the following two circumstances
   1. Your company decides to make a long term investment and decides to fund it through borrowings in the money market due to its low cost of funds.
   2. Alternatively a subsidiary company of yours wishes to raise money for working capital and decides to borrow such funds from the Capital market.

1. Your companys investment which is $500,000 eventually decides to issue bonds having a face value of $1,000. The given coupon rate is 11% p.a with 8 years to maturity and now selling at $1,123.76.
   1. How many bonds would need to be purchased?
   2. What is the annual yield to maturity of the bond?

1. As an investor you are planning to purchase the bond at the price of $1,123.76 and hold it for 4.5 years before you sell it at a market yield of 6% p.a.
   1. At which price would you sell the bond?
   2. What is the HPY?
   3. Is the HPY higher or lower than the Yield calculated in Part b) ii. EXPLAIN WITHOUT ANY CALCULATIONS.