Q2

a) A zero-coupon bond issued by Standard Bank is currently selling for $312 and matures in exactly 10 years. Calculate the semi- annual discount rate for this bond (4 marks)

b) Absa Bank has an outstanding 10% bond issue with a face value of $1000 per bond and 3 years to maturity. Interest is payable annually. The bonds are privately held by Dikgang Pension Fund and wishes to sell them to another party. It estimates that, in the current market conditions, the bonds should provide a nominal return of 14%. Calculate the price of the bond that should be realised on the sale

c) Differentiate between;

i) Money market and capital markets( 4 marks)

ii) Primary markets and secondary markets (4 marks)