Question $7$

$($a$)$ Two RM$1000$ bonds redeemable at par at the end of the same period are bought to

yield $4\%$ convertible semi$-$annually. Bond JJ costs RM$1136\mathrm{.}78$ and has a coupon

rate of $5\%$ payable semi$-$annually while the other bond KK costs RM$794\mathrm{.}88.$

Calculate the coupon rate payable semi$-$annually for bond $KK.$

$($b$)$ A company is considering two capital investment projects. Project A requires an

immediate expenditure of RM$100,000$ and will produce returns of RM$27000$ at the

end of each of the next eight years. Project B requires an immediate investment of

RM$120,000$ together with further expenditure of RM$2000$ at the end of each of the

first three years, and will produce returns of RM$135,000$ at the end of each of the

sixth, seventh and eighth years.

$($i$)$ Calculate the internal rate of return per annum for each project

$($ii$)$ Compare the net present value of each project on the basis of an effective

annual interest rate of $15\%$