Question 4 a. What are discount, premium and par bonds? What will happen to their prices as the bonds approach the maturity date? (4 marks) What are the risks associated to bond? Elaborate. [4 marks] Jamieson Enterprises wants to issue sixty 20-year, RM1,000 par value, zero-coupon bonds. If each bond is priced to yield 7 percent, how much will Jamieson receive (ignoring issuance costs) when the bonds are first sold? [4 marks] Mahligai Industries has issued a bond which has a RM1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for RM1,250. Using this information, determine the yield to maturity of the bond. [5 marks] The Alpha Corp, has two bonds outstanding that are the same except for the maturity date. Bond Delta matures in 4 years while Bond Epsilon matures in 7 years. If the investor's required rate return changes, which bond will experience greater price change? Why? (Hint: You only need to explain your answer) [3 marks] [TOTAL: 20 MARKS] Question 4 a. What are discount, premium and par bonds? What will happen to their prices as the bonds approach the maturity date? (4 marks) What are the risks associated to bond? Elaborate. [4 marks] Jamieson Enterprises wants to issue sixty 20-year, RM1,000 par value, zero-coupon bonds. If each bond is priced to yield 7 percent, how much will Jamieson receive (ignoring issuance costs) when the bonds are first sold? [4 marks] Mahligai Industries has issued a bond which has a RM1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for RM1,250. Using this information, determine the yield to maturity of the bond. [5 marks] The Alpha Corp, has two bonds outstanding that are the same except for the maturity date. Bond Delta matures in 4 years while Bond Epsilon matures in 7 years. If the investor's required rate return changes, which bond will experience greater price change? Why? (Hint: You only need to explain your answer) [3 marks] [TOTAL: 20 MARKS]
