Finance Answers

GG fund invested in 1,000 units of 7 percent, 15-year, RM1,000 bond issued by SLC

Bhd. The bond was issued on 1/11/2018 at par. The firm bought the bonds on 1/11/2021

when the bond was selling at 2% discount. The firm intends to sell back all the bond when

the interest rate is expected to be at 5% on 1/11/2026. Throughout the period of holding

the bond, the firm reinvest all the coupons received in an investment alternative that pays

8% interest for the 1st 3 years and 9% interest for the remaining years. You

are required to assist GG fund to determine:

i) their total yield from this bond investment

ii) total capital gain from this investment

A fund manager with the Ariri Fund Management, is contemplating between these bonds to be added to one of the firm’s balanced funds and balanced out the risks in the fund. Among the criteria he is looking for is a bond with an A and above rating, has less than 5 years to maturity and less volatile towards the changes in the interest rate. Listed are the corporate bonds available today.

BOND RATING COUPON (%) TERM TO MATURITY PAR VALUE ($)

A A 5 2 1,000

B A 7 10 1,000

C AA 4 3 1,000

D BB 6 4 1,000

The pandemic has eroded the value of money and lower down the purchasing power. He

expects that the interest rate is rising to 7 percent soon from the existing rate of 5 percent.

Based on the information given, his criteria, and modified duration; assist him to choose

one bond from the listed bonds.

A fund manager is considering incorporating a bond investment into the company's

investment portfolio. The manager is interested to know about the sensitivity of the

proposed bond towards the changes in the interest rate before making any decision for

his bond investment. The following is detailed information regarding the proposed bond

investment.

Bond RAG25:

Time left to maturity = 3 years and six months

Yield to maturity = 5 3⁄4 percent

Par value = RM1,500

Coupon = 6 percent

Using both duration and convexity, compute the estimated price, if the current market

interest rate is expected to reduce by 75-basis point.

 Homework Assignment:  

Determine the present value of each perpetuity 

Perpetuity 

Annual Amount 

Discount rate 

A 

$20,000 

8% 

B 

100,000 

10 

C 

3,000 

6 

D 

60,000 

5 

The House of Music sells low cost turntables and speakers. The total revenue equation for sales the two products is given by

TR = QT – 6QT2 + 100 QS – 4QS2 + QTQS

where QT and QS are quantities of turntables and speakers, respectively. The marginal cost of turntables is $20 and the marginal cost of speakers is $10.

i) Are the two goods substitutes or complements?

ii) What is the profit-maximizing rate of output for each good?

iii) What would be the profit-maximizing rate of output if there were no demand interdependence between the two goods?

what is the Price of U.S Coupon Bond issued in May 2018 and the Maturity date is May 2020 , with Par value $30 , yearly Coupon payments $5 ,and Interest Rate 7% ?

what is the Price of U.S Coupon Bond issued in May 2018 and the Maturity date is May 2020 , with Par value $30 , yearly Coupon payments $5 ,and Interest Rate 7% ?

At one Starbucks café in Swansea, cars arrive at the Drive-Thru at a rate of 25

per hour and only one drive-thru till is open. The average time it takes for an

order and collection is 5 minutes. Assuming that the interarrival time and the

service time are both exponentially distributed. Calculate the average number

of customers arriving at the till and the average time they must wait before

exiting Starbucks Drive-Thru.

Zoro Bhd recently issued 10-year bonds at a price of RM1,000. These bonds

pay 3% in interest each six months. Their price has remained stable since

they were issued. Due to additional financing needs, the firm wishes to issue

new bonds that would have a maturity of 10 years, a par value of RM1,000,

and pay RM40 in interest every six months. If both bonds have the same

yield, how many new bonds must Zoro Bhd issue to raise RM2,000,000

cash?

1. If you would like to accumulate RM 8,000 over the next 5 years, how much you must deposit at the end of each six months, starting six months from now, given a 6 percent interest rate and semi-annual compounding?

2. What is the effective annual percentage rate (EAR) of 12 percent compounded monthly?

3. Why do you think that the application of time value of money is important for financial management? Discuss (not more than 500 words)