QUESTION:

a) A bond can be characterized based on (1) its intrinsic features, (2) its type (3) its indenture provision, or (4) the feature that affect its cash flows and for its maturity.

Briefly explain the following intrinsic features of a bond:

a) Coupon

(b) Maturity

(c) Principal value

(d) Type of ownership

b) Last year, Bungwe Company issued a 10 years, 12% semiannual coupon bond at its par value of $1000. Currently, the bond can be called in 4 years at a price of $1060 and it sells for $1,1000.

(i) What are the bond's nominal yieid to maturity and its nominal yield to call? Would an investor be more likely to earn the YTM or the YTC? Briefly explain your answer.

(ii) What is the current yield? ls this yieid affected by whether the bond is likely to be called?

(iii) What is the expected capital gains (or loss) yield for the coming year? Is this yield dependent on wether the bond is expected to be called?

(iv) What is interest rate (or price) risk? Which has more interest rate risk, an annual payment 1-year bond or a 10-year bond?

(v) What is reinvestment rate risk? which has more investment rate risk, 1-year bond or a 10-year bond?

(C) Mangani Company's current stock price is k36.00, its last dividend was K2.40 and its required rate of return is 12%.

If dividends are expected to grow at a constant rate, g, in the future and if the required rate f retain is expected to remain at 12%, what is mangani's expected stock price 5 years from now?