Question 1

a) Lisa, a new executive at Baba Capital, is required to perform simple analysis of bonds in the bond market. She wants to calculate the theoretical values of the following four (4) bonds. Using the information provided below, calculate the intrinsic value of each bond and provide a short analysis from your findings. Par value for each bond is RM1,000. Hint: the analysis should include the relationship between coupon rate, yield to maturity and bond price (discounted/at par/premium).

	Coupon rate (%)	Coupon frequency	Yield to maturity (i)	Time/Year to maturity (n)	Intrinsic Value/Price (P0)
AA	10	Annually	10	8
BB	10	Semiannually	10	8
CC	10	Annually	12	10
DD	12	Annually	9	15

(10 Marks)

b) Suria & Co. is entering into expansion project that may limit the earnings during the expansionary period. However, after the completion of the project in three year-time, it should allow the company to enjoy much improved growth in earnings and dividends. Last year the company paid a dividend of RM3.00 per share. It expects 2 percent growth in the next three years. In year 4 and 5, 6 percent growth is expected. In year 6 and thereafter, growth should be constant at 10 percent per year. Determine the maximum price per share that an investor who requires a return of 14 percent should pay for Suria & Co. common stock.

(10 Marks)