QUESTION 9

Geely, a motor company, plans to raise SKR 10 million (or equivalent in other currencies) to acquire Volvo, a Swedish firm. Therefore, Geely decides to issue foreign bonds and has the following two options:

Bond A: 3-year USD coupon bond with face value of US1000; coupon rate = 5% p.a. paid annually; exchange rate = USD 0.09/SKR; yield-to-maturity (YTM) is 6% p.a.

Bond B: 3-year EUR coupon bond with face value of EUR1000; coupon rate = 6% p.a. paid annually; exchange rate = EUR 0.10/SKR; yield-to-maturity (YTM) is 5.5% p.a.

How many bonds should Geely issue if it chooses Bond B? (Please keep zero decimal place. please type in 9 (or 10) in the box if your answer is 9.1 (or 9.6), respectively.) (2 marks)

(2)

Ignore the information from the previous question, please design a spreadsheet using the Goal-seek function only in Excel to solve for the yield to maturity (p.a.) for the following bond issue:

5-year GBP coupon bond with a face value of GBP1000; coupon rate = 7% p.a. paid annually; upfront fees of 5.5%.

What is the yield to maturity in four decimal points?

Please show all your workings in the spreadsheet and upload the spreadsheet. Your work should include a screenshot that shows inputs for the following three parameters: (1) Set cell; (2) To value; and (3) By changing cell. (5 marks)