Question: Question 5 (a) A five-year bond is issued with a face value of 1,000 at 6% coupon rate paid semi- annually. Prevailing interest rate on

Question 5 (a) A five-year bond is issued with a face value of 1,000 at 6% coupon rate paid semi- annually. Prevailing interest rate on bonds with similar risk is 8%. What is the price of the bond? State whether the bond trades at a discount, at par, or at a premium. [10 marks) (b) Given a quarterly rate of 2%, calculate the Annual Percentage Rate (APR) and the Effective Annual Rate (EAR). [7 marks] (c) Tesco plc. is currently paying 2.50 per share as dividend to its shareholders. It is expected that dividends will grow by 2% per year forever. Tesco ple's rate of return on the share is 8%. Estimate the market price of Tesco plc.'s share. If the current share price is 40, what would you conclude about the share? [8 marks]

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