Reference no: EM133020505

Questions -

Q1. An issue of Australian Treasury bonds with par of $1,000 matures in 15 years and pays 8% coupon interest annually. The market price of the bonds is $1,085, and your required rate of return is 10% p.a. a. Compute the bond's expected rate of return (yield to maturity). b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond?

Q2. You own a bond with a par value of $1,000 that pays a $100 annual coupon. The bond matures in 15 years. Your required rate of return is 12% p.a. a. Calculate the value of the bond. b. How does the value of the bond change if your required rate of return

i) increases to 15% p.a., or

ii) decreases to 8% per annum?

c) Assume that the bond matures in 5 years instead of 15 years. Recompute your answers to part (b).

Q3. Hoyden Corporation's $1,000 bonds mature in 15 years and pay 9% coupon interest semiannually. If you purchase the bonds for $1,175, what is your expected rate of return?

Q4. Abner Corporation's bonds mature in 15 years and pay 9% semi-annual coupons. If you purchased the bonds today for $1,250, what is your expected rate of return?

Q5. What is the value of an irredeemable preference share that has a dividend rate of 14% on a $100 par value? The appropriate discount rate given the risk level for the preference share is 12%.

Q6. Minerv Ltd's preference shares are selling for $13 and paying $1.95 in dividends. What is your expected rate of return if you purchase this security at the current market price?