Question: Bond Valuation Question a) A non-callable bond has another 15 years to maturity. It carries a 6.3% annual coupon, and a RM 1000 par value.

Bond Valuation Question

a) A non-callable bond has another 15 years to maturity. It carries a 6.3% annual coupon, and a RM 1000 par value. An investor plans to buy and hold it for only four years. The required return of this investor is 5.2% per annum. The yield curve data indicates that the market expects that in 5 years, the yield to maturity on a 10-year bond with similar risk will be 6.7%.

i) Based on the available information, estimate the maximum bond price that this investor is willing to pay today.

ii) Estimate the expected current yield and capital gain of the bond in the first year based on the bond price calculated above.

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