Mrs Greace Omanbo invested GHS 74,240 in a 3-year bond with an interest rate of 21.85%,...

 

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Mrs Greace Omanbo invested GHS 74,240 in a 3-year bond with an interest rate of 21.85%, where the issuer promised to pay a semi-annud coupon till maturity. Following an insight into Mrs Omanbo investment experience, Mr. Oracle Razak observed that Mrs Omanbo purchased a bond at the price when it was first issued. Therefore, he has express the willingness to also purchase as it is now trading in the open market. However, the interest rate has changed to 17.25% at the open market. The bond was issued on 1" September 2021 and the next coupon payment date is 1" March 2022, Mr. Razak decided to purchase the bond at the open market on 7 December 2021. a) Calculate the price of the bond when Mrs Omanbo purchased the bond. b) Calculate the actual price that Mr Razak would pay when he purchases it at the open market. c) Explain your observations of the two situations. d) Calculate the duration for the two sets of payments in the case of Mrs Omanbo and Mr Razak. e) Explain the concept of duration to them. 1) Discuss any three factors that may affects the safety of the bond. Mrs Greace Omanbo invested GHS 74,240 in a 3-year bond with an interest rate of 21.85%, where the issuer promised to pay a semi-annud coupon till maturity. Following an insight into Mrs Omanbo investment experience, Mr. Oracle Razak observed that Mrs Omanbo purchased a bond at the price when it was first issued. Therefore, he has express the willingness to also purchase as it is now trading in the open market. However, the interest rate has changed to 17.25% at the open market. The bond was issued on 1" September 2021 and the next coupon payment date is 1" March 2022, Mr. Razak decided to purchase the bond at the open market on 7 December 2021. a) Calculate the price of the bond when Mrs Omanbo purchased the bond. b) Calculate the actual price that Mr Razak would pay when he purchases it at the open market. c) Explain your observations of the two situations. d) Calculate the duration for the two sets of payments in the case of Mrs Omanbo and Mr Razak. e) Explain the concept of duration to them. 1) Discuss any three factors that may affects the safety of the bond.

Answer rating: 100% (QA)

a To calculate the price of the bond when Mrs Omambo purchased it we need to use the formula for the present value of a bond Price Coupon Payment 1 Yi... View the full answer