Question 3 Part A The following table provides information relating to two recently issued corporate bonds by Eden Properties plc and Mozay Finance Ltd. Both bonds were issued at par. Characteristic Eden Properties 2030 Mozay Finance 2040 Maturity Issue size C100 million C500 million 15% Coupon 18% Callable after 5 Call provisions Noncallable. years Optional early Put provisions None retirement by bondholder Collateral Mortgaged on Assets None Bonds will not be Trading Bonds will be listed for trading A listed for trading A Bond rating From the information in the table above, identify and discuss features of the two bonds that might explain the lower coupon on the bond issued by Eden Properties. (40marks) Part B Your client is considering one of the two corporate bonds given below. Both bonds pay semi-annual coupons and are currently trading at the same price of 102.35. Bond A Bond B Characteristic Market price C102.35 102.35 Maturity 2025 2025 | Coupon 15% 18% Yield to maturity 10% 13% Macaulay Duration 4.1 years 3.9 years Callable after 18 Call Features Noncallable months at C105.00 i. Using the information in the table above, estimate the percentage price change and the new price for both bonds if the yield falls by 50 basis. points. % Change in Bond Price-DX Ar Hint: il. Briefly discuss why the actual price changes in the two bonds might differ from your estimates calculated in (1) above if the yields actually fall by 50 basis points. In each case indicate whether the actual price will be higher or lower than the estimated price and why. (Credit will be given for graphical illustration of concepts) (40marks)