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What is the value of the bank bill

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Reference no: EM132765019

You have a choice between the following three investments:

  • A bank bills. The bill was issued as a 90-day bank bill 30 days ago. It has a face value of $100 and is currently trading at a yield of 5.75% p.a.
  • A coupon bond issued by a AA-rated company. Fitch Ratings has estimated that the yield on debt issued by AA companies in the current interest rate environment to be 6.6%. The bond has a face value of $100, 5 years to maturity and makes semi-annual coupon payments at a coupon rate of 5.4% p.a.
  • An ordinary share. The share is expected to pay an annual dividend of $14 next year, $12 in year 2, $10 in year 3, and then $9 every year thereafter in perpetuity. Your required rate of return on this share is 10%.

Requirements:

Problem (a) What is the value of the bank bill?

Problem (B) What is the value of the bond?

Problem (C) What is the value of the share?

Reference no: EM132765019

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