Question 2.d (5 marks)

A friend of Alan follows the financial markets as a hobby and each month makes a small investment in shares or bonds. He recently sold all of his investments for AUD15,000 to fund the purchase of bonds in Titan Engineering Limited. When Alan expressed surprise and concern at this decision the friend responded the Titan bond price in the market was super cheap it was an easy decision for me.

The bonds had a remaining term of 7 years, a 3% coupon (semi annual) and a face value of AUD1,000. The market price (the price that the friend paid) was AUD850. The yield on similar bonds was 7%.

With reference to price and value, comment on this investment. (3 marks)

Comment on any other issues might Alan be concerned about. (2 marks)