Determine the current market price of the bond

Reference no: EM131207388

Question 1- Jessica opened a bank account with an initial deposit of $10,000. The bank account pays monthly interests at 6% p.a. convertible monthly.

(a) How much will Jessica accumulate in 5 years if she is not going to make further deposits?

(b) Jessica plans to withdraw $5000 from this account in 6 years' time and the remaining balance $X in 8 years' time. Calculate the value of X.

Question 2- A loan is borrowed to make a purchase. The loan is going to be repaid by 3 instalments. The first instalment will be $1,000 in 4 months, the second instalment will be $1,200 in 8 months and the final instalment will be $1,500 in 12 months.

(a) Calculate the value of the loan if the bank charges interest at 12% p.a. compounded monthly.

(b) Calculate the value of the loan if the bank charges interest at 12% p.a. compounded quarterly.

Question 3- Investor A contributes 40 payments of $2,000 at the end of each year into a funduntil his 60th birthday. The fund earns 8% effective annual return.

(a) How much will be in the fund immediately after the final deposit?

(b) Assume no further contribution is made, how much will be in the fund on the investor's 65th birthday?

Question 4- Mike deposits a single payment into a fund on 1 July 2013. Mike will make quarterly withdrawals of $1,000 for 5 years (i.e. 20 withdrawals will be made). Interest is at 10% p.a. convertible quarterly. Calculate the size of the initial deposit if

(a) the first withdrawal is on 1 October 2013 (one quarter after 1 July 2013);

(b) the first withdrawal is on 1 July 2014 (four quarters after 1 July 2013).

Question 5- A company wishes to accumulate $50,000 by the end of 5 years. What level deposit should be made at the end of each quarter for 5 years if interest is at 12% p.a. compounded monthly?

Question 6- (a) How much money $X is required to establish a scholarship paying $10,000 per year in perpetuity, if interest is at7% p.a. effective?

(b) Jack has to make a choice between two bank saving accounts. CBA offers 6% p.a compounded monthly whereas ANZ offers 6.4% compounded semi-annually. Assume Jack prefers higher return, provide a suggestion and justify with calculation.

Question 7- A bond with face value of $1000 and semi-annual coupon rate 8% is to be redeemed at par in 6 years. Assume market yield is 10% p.a. compounded semi-annually.

(a) Determine the current market price of the bond.

(b) Answer the following question without calculation. Assume the market interest rate decreases to 6%, will the bond price be higher or lower than $1000? Briefly justify your conclusion.

Question 8- (a) TLSA Ltd paid 50 cents dividend yesterday and expect that to grow at 4% p.a. infinitely. If the required rate of return is 15%, calculate the current share price of TLSA.

(b) Norm Ltd is expected to pay $1 annual dividend per share in the next three years but reduce that to $0.5 per share infinitely. Calculate the share price of Norm Ltd assuming 12% required rate of return.

(c) HVA Ltd is expected to make the first dividend payment of $0.8 per share in 4 years. The dividend will grow by 3% each year infinitely. Calculate the current share price of HVA assuming 16% required rate of return.

Question 9- What is a principal-agent problem that may exist in a company? Give one example of this problem in reality. Briefly explain how is this problem addressed in practice?

Reference no: EM131207388

Questions Cloud

Explain how humanism affected renaissance art and culture : Explain how humanism affected Renaissance art and culture. How does Sandro Botticelli's Birth of Venus reflect the then-popular neo-Platonist philosophy?

Mark the value of the option on each nod of the tree : (a) What is the value of a 6-month European call option with a strike price of $52 using a three-step binomial tree? (b) Draw the tree mark the value of the option on each nod of the tree.

Find type and impedance in ohms of series circuit elements : Find the type and impedance in ohms of the series circuit elements that must be in the closed container of given figure for the indicated voltages and currents to exist at the input terminals.

Identify current strategic goals and outcome measures : Identify current strategic goals, initiatives, and outcome measures. Identify current LOB's business services, and associated activity/flow diagrams. Identify current information flows and data documentation in each LOB.

Determine the current market price of the bond : A bond with face value of $1000 and semi-annual coupon rate 8% is to be redeemed at par in 6 years. Assume market yield is 10% p.a. compounded semi-annually. Determine the current market price of the bond

Contrasting the outcomes in the three countries : Describe the data you observe, contrasting the outcomes in the three countries. Try to provide brief explanations for these outcomes. What is your prediction about how future outcomes will evolve in these countries?

Conduct top down analysis of overall economic environment : HA1022 Principals of Financial Markets Group Assignment - Conduct a Top Down analysis of the overall economic environment and consider how forecast changes in economic fundamentals will impact on the performances of companies in the industry your g..

What are the central theses of the texts at hand : What are the central theses of the texts at hand? What is the main idea of the passage? Note key terms or issues. What quote(s) from the reading capture(s) the main idea?

What is the expected value of project''s net present value : The two forms of country risk are independent. The required rate of return on this project is 26 percent. There is no salvage value. What is the expected value of the project's net present value?

User Account

All Pages