Question 3

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New generation Public Utilities issued a bond with a $ LUCIE par value that pays was in annual interest. it matures in 5 years and the required rate of return is 3 percent. Required: - a} identify the value of the bond. {6 Marks] 13} Identify the value change if the required rate of return increase to ill} percent. {5 Marks] c] Identify the value change if the coupon payment is 5%, required rate of return is 8 percent for 5 years. {5 Marks] d} Explain the implication of your answer as they relate to par value. premium bonds. and discount bonds. a) Distinguish between secured and unsecured sources of financing. (12 marks) b) Explain the advantages of commercial paper. (8 marks) Explain hedging principle.