Hi..

Question 1

(a) Your grandmother urges you to begin a habit of saving money early in your life. She suggested that you put RM10 a day into an envelope. If you follow this advice, at the end of the year you will have RM3,650.

Your grandmother further suggested that you take the money at the end of the year and invest it in an online brokerage mutual fund account that has an annual expected return of 10%. You are 20 years old. If you start following your grandmothers advice today and continue saving in this way the rest of your whole life, how much do you expect to have in the brokerage account when you are 67 years old?

(b) You just received your first credit card and decided to purchase a new Apple iPhone. You charged the Iphones 500 purchase price on your new credit card. Assume that the nominal interest rate on the credit card is 20% and the interest is compounded monthly. The minimum payment on the credit card is only RM10 a month. If you pay the minimum and make no other charges, how long will it take you to fully pay off the credit card?

Question 2 An investor has two bonds in her that have a face value of RM10000 and pay a 10% annual coupon. Bond A matures in 15 years, while bond B matures in 1 year. (a) What will the value of each bond be if the going interest rate is 5% and 12%?

Assume that only one more interest payment is to be made on Bond B at its maturity and that 15 more payments are to be made on Bond A. (b) What does the longer-term bonds price vary more than the price of the shorter-term bond when the interest rate changes?

(c) On January 1, 2020, Ibrahim is considering to purchase an outstanding bond that was issued on January 1, 2018. The bond has a 9.5% annual coupon and had a 30-year original maturity. (It matures on December 31, 2047). There are 5 years of call protection (until December 31, 2022), where it can be called at 109% of par value, or at RM1090. The interest rate has declined since it was issued, and it is now selling at RM1,165.75 (i) What is the Yield to maturity?

(ii) What is the Yield to call?