Lend Lease Ltd is planning to issue 7-year bonds with semi-annual coupon payments. The market interest...

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Lend Lease Ltd is planning to issue 7-year bonds with semi-annual coupon payments. The market interest rate for such bonds is 8%. Coupon payments will be made at a rate of 9.25%. The management of Lend Lease Ltd has determined the company needs to raise $875,000 to fund the purchase of a new office and wants to use the proceeds of the bond issue for that purpose. i) Calculate the price of these 9.25% coupon bonds. ii) State and explain whether these bonds are premium or discount bonds. How many of these 9.25% coupon bonds would the company issue? Calculate the price of these bonds, if they paid no coupons to investors. annual compounding for these zero-coupon bonds. (5 marks) (2 marks) (2 marks) Assume semi- (2 marks) How many of the zero-coupon bonds would the company need to issue? (2 marks) iii) iv) v) b) Exactly 2 years ago, you purchased at par a 10-year, 10 percent semi-annual coupon bond, with a face value of $1000. Today, the market rate of interest is 6%. i) What was the market rate of interest (discount rate) at the time you purchased the (1 mark) bond? Suppose you wish to sell the bond today, how much can you sell if for? (2 marks) What is your rate of return on the bond if all coupons were reinvested in an account, which pays 1% interest per year until the bond is sold 2 years after owning it? (2 marks) c) Why are long-term bonds more sensitive to changes in interest rates than short-term (2 marks) bonds? (Total = 20 marks) Lend Lease Ltd is planning to issue 7-year bonds with semi-annual coupon payments. The market interest rate for such bonds is 8%. Coupon payments will be made at a rate of 9.25%. The management of Lend Lease Ltd has determined the company needs to raise $875,000 to fund the purchase of a new office and wants to use the proceeds of the bond issue for that purpose. i) Calculate the price of these 9.25% coupon bonds. ii) State and explain whether these bonds are premium or discount bonds. How many of these 9.25% coupon bonds would the company issue? Calculate the price of these bonds, if they paid no coupons to investors. annual compounding for these zero-coupon bonds. (5 marks) (2 marks) (2 marks) Assume semi- (2 marks) How many of the zero-coupon bonds would the company need to issue? (2 marks) iii) iv) v) b) Exactly 2 years ago, you purchased at par a 10-year, 10 percent semi-annual coupon bond, with a face value of $1000. Today, the market rate of interest is 6%. i) What was the market rate of interest (discount rate) at the time you purchased the (1 mark) bond? Suppose you wish to sell the bond today, how much can you sell if for? (2 marks) What is your rate of return on the bond if all coupons were reinvested in an account, which pays 1% interest per year until the bond is sold 2 years after owning it? (2 marks) c) Why are long-term bonds more sensitive to changes in interest rates than short-term (2 marks) bonds? (Total = 20 marks)

Answer rating: 100% (QA)

1 Price of the 925 coupon bonds 875000 PV C x PVIFArn M x PVIFrn PV 925 x PVIFA814 875000 x PVIF814 ... View the full answer