QUESTION 1

Following her investment plan, Linda decided to invest some money in corporate bonds. After receiving advice from her financial planner friend, Grace, Linda bought RM100 per unit of plain vanilla bonds from Genting Bhd. The bond has a par value of RM100 per unit and a coupon interest is 7%. The bond can be redeemed in 10 years at the par value. Lindas required rate of return from the bond investment is 6%.

Compute the bond price if:

a) The coupon interest is payable on annual basis.

b) The coupon interest is payable on a semi-annual basis.

c) The coupon interest increased to 8% and payable on a semi-annual basis.

d) Using your answer in (c) above, if an investor offers to buy Lindas bonds at RM100 for each unit, what is your advice to Linda?

e) The maturity period increased to 15 years and the coupon is payable on an annual basis.