Assume that Lynas Ltd. would like to raise $1,000,000 with a new issuing of bonds. Assume that the issue will have a coupon rate of 4% with a 5 year maturity. Assume this are semi-annual coupon bonds and each have a face value of $1,000. The required rates of return for similar bonds in the market is 8%. 

(a) What would be the issuing price of these bonds? 

(b) How many bonds Lynas Ltd. will have to issue? (Show all of your calculation).

2.What would happen to the price of a bond if:

(a) the rating of this bond improve from A to AAA, 

(b) the interest rates goes up. Explain why. (no calculation needed)

3.Peter North is interested in buying shares in Lynas Ltd. which is growing at a constant rate of 4 per cent. Lynas Ltd. just paid a dividend of $1.75. The required rate of return is 11 per cent.

(a) What is the current price for this share?

(b) What would be the price of this share in three years?

Answer rating: 100% (QA)

1a To calculate the issuing price of the bonds we need to use the formula for the present value of a bond Issuing price Coupon payment 1 Required ratePeriod Coupon payment 1 Required ratePeriod1 Coupon payment 1 Required rate2 Coupon payment 1 Required rate ... View the full answer