Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Question 2: (15 marks) (a) Company X issued three bonds, details are as below. Bond A 4 Face Value (S) Price ($) 1,000 $990 ,000
Question 2: (15 marks) (a) Company X issued three bonds, details are as below. Bond A 4 Face Value (S) Price ($) 1,000 $990 ,000 $990 1,000 $990 Annual coupon Rate % 7.5% Year-to-Maturity 1 year 17 years 25 years B 1 8.5% Given the opportunity to invest in one of the three bonds, which one you would purchase? Assume an interest rate of 7%. Required: i) Calculate the yield of each bond 2 marks ii) Calculate the present value of each bond at 7% interest rate 2 marks iii) Recommend which one you would purchase. 2 marks Sub-total: 6 marks (b) In time, Company X just paid a perpetual dividend stream as $0.12 per share; and the cost of equity (ke) is 10%. It is expected that there is an increase of the perpetual dividend of $0.02 in one-year time. i) What is the current price of the share? 2 marks ii) What is the price in a year later? 2 marks ili) What is the rate of return over a year? 2 marks Sub-total: 6 marks (c) Mr. Chan, a director of Company X, wants to accumulate $2,593,742.46 when he retires at 65. A consultant suggests a plan requiring him to make 20 quarterly deposits at a yearly rate of 12%, compounded quarterly, with the first deposit being made in one quarter after his 60 birthday and the final deposit on his 65th birthday. How much do Mr. Chan need to deposit every quarter? 3 marks
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started