An investor needs to decide whether to invest in Bond A or Bond B. Before making...

  

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An investor needs to decide whether to invest in Bond A or Bond B. Before making a decision, the investor wants to understand the features of the two bonds. The investor compiled the following information about Bond A: Par value: R15 00 000 Coupon rate: 12% semi-annual bond Coupon payments: 28 February and 31 August Number of days of accrued interest: 137 Clean price: R121.11540% Register closing dates: 18 February and 21 August Maturity date: 28 February 2031 The bond was traded on 15 July. He also gathered the following information concerning Bond B: Par value R10 000 000 Coupon rate 13% annual bond The current market prices for Bond B under two different scenarios have been provided as follows: Scenario 1: market value: R10 100 000 Scenario 2: market value: R9 900 000. Note to students: show all calculations and round off your final answers to two (2) decimal places. 3.1 Calculate the consideration that the investor would have to pay for Bond A on 15 July. (6) 3.2 Calculate the current yield for Bond B under both scenarios. (2 x 2 - 4) 3.3 Explain under which scenario for Bond B the investor would receive the highest return. (1) An investor needs to decide whether to invest in Bond A or Bond B. Before making a decision, the investor wants to understand the features of the two bonds. The investor compiled the following information about Bond A: Par value: R15 00 000 Coupon rate: 12% semi-annual bond Coupon payments: 28 February and 31 August Number of days of accrued interest: 137 Clean price: R121.11540% Register closing dates: 18 February and 21 August Maturity date: 28 February 2031 The bond was traded on 15 July. He also gathered the following information concerning Bond B: Par value R10 000 000 Coupon rate 13% annual bond The current market prices for Bond B under two different scenarios have been provided as follows: Scenario 1: market value: R10 100 000 Scenario 2: market value: R9 900 000. Note to students: show all calculations and round off your final answers to two (2) decimal places. 3.1 Calculate the consideration that the investor would have to pay for Bond A on 15 July. (6) 3.2 Calculate the current yield for Bond B under both scenarios. (2 x 2 - 4) 3.3 Explain under which scenario for Bond B the investor would receive the highest return. (1)

Answer rating: 100% (QA)

explanations and calculations 31 The investor would have to pay R12111540 for Bond A on 15 July ... View the full answer