What is financial system

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(a) Mrs Wong invested in a bond issued by Titoti Ltd. The bond has $1,000 par value, matures in five (5) years and has a coupon rate of 8%, with coupon paid semiannually. What is the maximum price Mrs Wong should pay for the bond if her alternative is to invest in her friend's company who will guarantee a 6% pa return, compound semi-annually?

(b) Alfred plans to invest in the ordinary share of Prince Ltd which is trading at $25.00 currently. From his friends, he learnt that the company will have a dividend of $1.40 per share at the next payment. Thereafter, the dividend payments is projected to grow at a rate of 7% for another two years. From the fourth year onward, Prince Ltd will adopt a constant dividend growth policy of 5% annually. If the required rate of return for Alfred is 10%, what is the intrinsic value of the share?

(c) What is financial system? Explain the 3 functions of financial system?

Reference no: EM132580189

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