On 8 November 2022, Zandile Zungu acquired twenty South African treasury bonds that pays semi-annual interest at a current price (present value) of 117% of
On 8 November 2022, Zandile Zungu acquired twenty South African treasury bonds that pays semi-annual interest at a current price (present value) of 117% of R1 000 par value per bond. The last coupon payment was made by the bond issuer on 30 June 2022 and the coupon rate is 6% per annum. The bond matures on 31 December 2026. There was also an alternative investment for Zandile – this was to invest the same amount into BB-rated corporate bonds for the same yield.
What is the invoice price of each bond paid by Zandile Zungu? (4 marks)
Did Zandile Zungu pay the correct price for his investment considering current interest rates? Discuss with reasons. (3 marks)
Did Zandile Zungu make the correct decision for investing in the treasury bond rather than the BB-rated corporate bonds as an alternative investment?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
To calculate the invoice price of each bond paid by Zandile Zungu you can use the following formula Invoice Price PV of future cash flows Accrued Interest 1 PV of Future Cash Flows The bond pays semia...
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Step: 2
Step: 3
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Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
5th Edition
0135811600, 978-0135811603
