Question 1 [Total: 30 marks]

1. a) X Mobile has two different bonds currently outstanding. Bond Y is a premium bond with a coupon rate of 8.5 percent, and Bond Z is a discount bond with a coupon rate of 5 percent. Both bonds have a YTM of 7 percent, 10 years to maturity and making annual coupon payments, with RM1,000 par value. Calculate the current yield for both bonds, and what is the expected capital gains yield over the next year if the interest rate remains the same. (14 marks)

1. b) Discuss the main factors that affect the shape of the yield curve and the benefit for a bondholder to understand the bonds theorem. (10 marks)

1. c) Discuss the relationship between current yield and YTM for all bonds. (6 marks)