QUESTION 4 (20 MARKS)

There are various palforms through which a company can raise funds to finance its capital projects. One of the common markets are capital and money markets. As a way of raising finance to finance capital projects, suppose your organization has issued a N$ 1 000 bond with a coupon rate of 9% per annum paid annually, and promises to pay back the principal in ten years. Suppose the current market interest rate on similar bonds is 10%.

REQUIRED: Carefully, answer the following questions:	MARKS
(4.1.)	Distinguish between a bond holder and bond issuer, and explain how your organization is called in this transaction.	2
(4.2.)	Compute the value of this bond today as per the given information. Accordingly, differentiate between a capital market and money market.	8
(4.3.)	Suppose no change in the current market interest rate. What would happen to the bond's value today if : Coupon interest rate increases by 5%. Coupon interest rate decreases by 5%. [(Hint: Recalculate the value of the bond after you factored in the assumed changes in (i) to (ii), and clearly state how it is trading]	10
TOTAL MARKS FOR QUESTION 4	20