Question: a) Explain the differences between yield to maturity (YTM) and coupon rate of a bond. (8 marks) b) Transmit Plc is a large UK electricity

a) Explain the differences between yield to maturity (YTM) and coupon rate of a bond. (8 marks)

  1. b) Transmit Plc is a large UK electricity company that specialises in the generation, transmission and distribution of electricity. The company has chosen to extend its services to Mowhi, a neighbouring country. The company has a bond with 8 per cent coupon, and it makes annual coupon payments. The bond is priced at par value. It has 10 years to maturity. Assume the face value of the bond is 100. Assuming the market interest rate fall by 1 per cent 1 year from now. Calculate the bonds price after the next coupon is paid. (9 marks)

  2. c) Richard is a recent graduate from a business school in the UK. Jackson and Jackson Plc is UK based large consumer health company that designs and produces various medical and diagnostic devices for over-the-counter use. The company issued a 10 per cent annual coupon, 30-year corporate bonds today. Richard can buy the bonds today. Suppose market interest rates suddenly increase to 12 per cent, explain how the value of the bond changes. Refer to present value

in your answer.

May 2021

Course Title: Managing Business Finance Course Code: FINA1095

(8 marks) Total 25 Marks

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