Section A Congratulations, you have successfully passed FINN 200 course and are now working at Suleman Dawood Investment Firm. Today is your first day at job. Given the fact that you secured very high marks in your quiz on bonds chapter you have been assigned to work in the bond investment division. Suleman Dawood Investment Firm is considering making investment in Engro Corporations bonds. 1. What is the value of Engro Corporation's ten-year bond that has a par value of PKR 1,000 and annual coupon rate ten percent? You can assume that required rate of return is ten percent. 2. How would be the value of Engro Corporations bond, if just after it had been issued the expected inflation rate in Pakistan rose by three percentage points, causing investors to demand a return of thirteen percent? Would the bond of Engro now be a discount bond or a premium bond? 3. What would happen to Engro bond's value if due to policy intervention by State Bank of Pakistan the inflation rate dropped causing required rate of return to fall to seven percent? Would the bond of Engro now be a discount bond or a premium bond? 4. What would happen to value of bond of Engro's ten-year bond over time if the required rate of return remained at thirteen percent or it remained at seven percent? 5. Your friend, who is also working in the bonds division of Suleman Dawood Investment Firm, took FINN 100 in an online setting. He is confused about relationship between required rate of return and the bond's coupon rate. Calculate the yield to maturity on a ten-year, nine percent annual coupon, PKR 1,000 par value bond that sells for PKR 887? Now calculate the yield for the bond if it sells for PKR 1,134.20? What does the fact that a bond sells at a discount or a premium tell you about the relationship between required rate of return and the bond's coupon rate? 6. Now consider bond of PTCL. Suppose their ten-year, ten percent, semiannual coupon bond with a par value of PKR 1,000 is currently selling for PKR 1,135.90, a producing a nominal yield to maturity of eight percent. The bond can be called after five years for a price of PKR 1,050. What is the nominal YTC of bond of PTCL? 7. If you bought bond of PTCL, do you think you would be more likely to earn the YTM or YTC? Please explain