Question 1 (Total 16 marks)

a. A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000 face value, and a maturity date 21 years from today. What is the current yield? (5 marks)

b. Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent? (4 marks)

c. Healthy Foods just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you require a 14 percent rate of return? (3 marks)

d. Refer to part b. and c., explain why the investors required rate of return on bonds and stocks are different. (4 marks)

Question 2 (Total 24 marks)

The Assessment Year would be 2020/21. Notes on computation of Salaries Tax / Personal Assessment are attached.

Laura and Jonathan, both are aged 35, have been married for six years. Jonathan works for a multinational company at a monthly salary of $32,000. Laura is a part-time accountant and earns $11,000 per month. They only make mandatory contributions to their MPF schemes.

They have a little boy, aged 2. They presently rent an apartment in Shatin for $16,000 inclusive per month. The familys other monthly expenses total at $12,000.

Jonathans employer provides excellent fringe benefits, including group life insurance equal to five times Jonathans annual salary, group disability insurance and adequate family medical insurance. The beneficiary of Jonathans group life insurance is Laura. Jonathan and Laura do not have any personal life insurance policy. Currently they have no will. They appreciate the importance of such estate planning tool as they have a little boy.

Jonathan and Laura currently have $1,200,000 cash in their bank account; they do not have any securities. They plan to use a major portion of this cash for the 25% down payment for a flat of $3,500,000. Jonathan and Laura plan to invest $100,000 out of the $1,200,000 cash in Hong Kong stocks.

a. If Jonathan and Laura purchased the flat with a 25% down payment and the mortgage would be for 25 years, how much would be the initial monthly payment if the interest rate is P -2.5% and the prime rate (P) is fixed at 5%? (6 marks)

b. What would you advise Jonathan and Laura on insurance aspects? (6 marks)

c. What would you advise Jonathan and Laura to invest the $100,000 in? (6 marks)

d. If Jonathan died today, how much would Laura get from Jonathans company group life insurance? Would that be enough for her? Why? (6 marks)