Singapore savings bonds are issued every month. They are different than the typical bond

discussed in class in four ways:

1. They pay semi-annual coupons

2. Their coupon rate is not fixed, but rather changes every year

3. Their face value is $500D

4. Not only can investors purchase them at par but they can redeem them at par in any given

month before the bond matures

Consider this month's bonds: http://www.sgs.gov.sg/savingsbonds/Your-SSB/This-monthsbond.

aspx

a. What is the total amount available for purchase by investors?

b. What is the maturity of the bonds (in years)?

c. What is the coupon rate for each year until maturity? Show your answer in a table.

For parts (d) and (e) we will assume incorrectly (but for ease of computation) that the bonds pay

annual coupons. Use the coupon rates from part (c) with no changes. In the solutions, I will also

provide an answer with semi-annual coupon payments for your reference.

d. Assume you purchase $1000 of the bonds. Show the cash flows associated with holding

the bonds for two years and then redeeming them at the end of the second year. What is

the IRR of this investment strategy?

e. Repeat (d) for investment horizons of 3 to 10 years in one-year increments (ie, 3, 4, 5

years, etc.) Dothis IRR computations agree with the "average return per year" shown on

the SGS website?