Your company was in need of R5 million for expansion purposes. You decided to issue semi-annual...

  

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Your company was in need of R5 million for expansion purposes. You decided to issue semi-annual R1 000 bonds which pay a coupon of 10% for a 15-year period. A year after the bonds were issued, the interest rate in the market increased by 1,5%. Required a) What was one bond worth one year after it was first issued? [5 Marks] b) If your company issued 1 500 bonds at par in the first year, how many would you still have to sell at the new present value? [5 Marks] 3.2 Bokke's management anticipates that, after five years of paying a constant dividend of R2 per year, they will be able to secure new markets. Management thus feels that, commencing with the dividend in year 6, dividends should grow at a rate of 20% per annum for two years (i.e., in years 6 and 7); then there should be 18% growth for one year (i.e., in year 8), settling down thereafter to a constant growth of 10% per annum indefinitely. The required return has increased to 20% per annum. You are required to calculate the price of Bokke's shares today [10 Marks] Your company was in need of R5 million for expansion purposes. You decided to issue semi-annual R1 000 bonds which pay a coupon of 10% for a 15-year period. A year after the bonds were issued, the interest rate in the market increased by 1,5%. Required a) What was one bond worth one year after it was first issued? [5 Marks] b) If your company issued 1 500 bonds at par in the first year, how many would you still have to sell at the new present value? [5 Marks] 3.2 Bokke's management anticipates that, after five years of paying a constant dividend of R2 per year, they will be able to secure new markets. Management thus feels that, commencing with the dividend in year 6, dividends should grow at a rate of 20% per annum for two years (i.e., in years 6 and 7); then there should be 18% growth for one year (i.e., in year 8), settling down thereafter to a constant growth of 10% per annum indefinitely. The required return has increased to 20% per annum. You are required to calculate the price of Bokke's shares today [10 Marks]

Answer rating: 100% (QA)

a To calculate the value of one bond one year after it was first issued we need to determine the pre... View the full answer