Question 1

1. You have received some money and you want to invest it. Assuming these are only two bonds currently trading on the JSE Bond Exchange;

• Bond Z - 10 % coupon bond issued by Zwide trucking, and
• Bond M - 8% coupon bond issued by Mntungwa technologies.

Both bonds have a face value of R1000.00 and will mature in two years' time. Assuming conditions of certainty.

1. If Bond Z has a price of R 1000.00, calculate its YTM. (1 mark)
2. If Bond M is priced at R900.00 which bond would you prefer to hold, and why? Show your workings. (1 mark)
3. Suppose the maturity period of bond Z is two years and interest rates are at 10% in the first year and increase by 1000 basis points in the second year, calculate the rate of return of the bond if the holding period is two years. (1 mark)