QUESTION 3 [25 MARKS] (a) "A bond is a long-term instrument or security. Bonds pay a fixed rate of interest to the bond holder up to maturity when the nominal value of the bond is redeemed". (i) Describe the main features of a bond. [5 marks] (ii) A municipal bond has a par value of $1,000. It will mature in 11 years and will pay an annual coupon rate of 7% per annum. Assuming the rate of interest on the market is 5%, calculate the price of the bond. [5 marks] (b) "The recognition of the time value of money and risk is crucial in financial decision making. (0) Distinguish between an ordinary annuity and an annuity due. [2 marks] (ii) Shares in Folk Plc currently sell for $2,300 and will be worth $2,900 in 4 years. Calculate the rate of return. [3 marks] (iii) Mr Gilbert is currently 45 years old and by the age of 70 years, he wants to guarantee an income of $ 20,000 each year. Assuming a rate of interest of 7% per annum, calculate the starting amount he needs to accumulate. [4 marks] (vi) MCB Ltd has made an interesting offer on loans for all first-time buyers of a house having the following particulars: Loan amount: $1,000,000 Rate of interest: 6% per annum (Annualised Percentage Rate) Maturity period: 25 years Calculate the monthly payment. [6 marks] QUESTION 3 [25 MARKS] (a) "A bond is a long-term instrument or security. Bonds pay a fixed rate of interest to the bond holder up to maturity when the nominal value of the bond is redeemed". (i) Describe the main features of a bond. [5 marks] (ii) A municipal bond has a par value of $1,000. It will mature in 11 years and will pay an annual coupon rate of 7% per annum. Assuming the rate of interest on the market is 5%, calculate the price of the bond. [5 marks] (b) "The recognition of the time value of money and risk is crucial in financial decision making. (0) Distinguish between an ordinary annuity and an annuity due. [2 marks] (ii) Shares in Folk Plc currently sell for $2,300 and will be worth $2,900 in 4 years. Calculate the rate of return. [3 marks] (iii) Mr Gilbert is currently 45 years old and by the age of 70 years, he wants to guarantee an income of $ 20,000 each year. Assuming a rate of interest of 7% per annum, calculate the starting amount he needs to accumulate. [4 marks] (vi) MCB Ltd has made an interesting offer on loans for all first-time buyers of a house having the following particulars: Loan amount: $1,000,000 Rate of interest: 6% per annum (Annualised Percentage Rate) Maturity period: 25 years Calculate the monthly payment. [6 marks]