QUESTION ONE

$45$ MARKS

CASE STUDY

READ THE CASE STUDY AND ANSWER THE QUESTIONS THAT FOLLOW:

Spirit Limited is a manufacturer of electrical appliances. Due to a slow$-$down in the economy, Spirit does not have viable business opportunities to invest in and, for this reason, excess cash is to be invested in two different portfolios, instead:

government bonds and

equity instruments.

Portfolio $1$: Government bonds

This portfolio is held to earn contractual cash flows where the contractual cash flows comprise a return of the principal amount and interest on the principal.

$\backslash$table$[[$Purchase price on acquisition date $(1$ January $20$X$3),780000],[$Transaction costs $(1$ January $20$X$3),60000],[$Maturity date,$\frac{31}{12}\frac{?}{20}7$