Question 1 (25 Marks)

a) Positive Mindset Limited (PML) is evaluating financing options as they finalize plans to expand into South America. They have decided to issue a 38-year bond series as per the approval of the board of directors. The bonds will be issued on January 1, 2023 and will mature on December 31, 2060. The bonds will have a $1,000 par value and will pay semi-annual coupons at a rate of 6.5% per annum. Coupons will be paid semi-annually.

i.) On what dates will the final four coupon payments be made (month, day, and year)? (2 Marks)

ii.) What would be the value of the bonds on July 1, 2042, if the interest rates had risen to 9%? How would the bond be classified? (9 Marks)

iii.) Calculate the current yield and yield to maturity on the bonds on January 1, 2048, if they were selling for $877.50 at that time. (9 Marks)

b) On January 1, 2017, Tasheka purchased 30-year bond which matures on December 31, 2046. She is now desirous of selling the bond, but interest rates have risen and the bond value has fallen significantly. Explain to Tasheka, in terms of supply and demand, why the bond value has fallen. (5 Marks)