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Mr. Aziz, the finance manager of Best Company Berhad, was thinking about buying some bonds. There are several bonds that he is interested to invest
Mr. Aziz, the finance manager of Best Company Berhad, was thinking about buying some bonds. There are several bonds that he is interested to invest in. The followings are the data on RM1,000.00 par value bonds issued by Paragon Berhad, Oriental Berhad, and UMS Holding Berhad. REQUIRED: a. Assuming that the interest is paid annually, calculate the value of the bonds. b. If the bonds are selling for the following amounts: Paragon Berhad RM1,085.00; Oriental Berhad RM1,175.00; and UMS Holding Berhad RM1,115.00, what are the expected rate of return for each bond? c. How would the value of the bonds change if (i) the required rate of return increased by 3 percent or (ii) decreased by 3 percent? d. Explain the implications of your answers in part (c) in terms of interest rate risk, premium bonds, and discount bonds. e. Should Mr. Aziz buy the bonds? f. Another option for Mr. Aziz is to invest in common stock of Napoleon Inc. which paid a dividend of RM1.25 last year. Dividends are expected to grow at an annual rate of 8 percent for an unspecified number of years. Napoleon's current market price is RM43.00 per share and Mr Aziz's required rate of return is 9.5 percent. Based on this information, should Mr. Aziz buy this stock
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