You are a financial broker employed at FAC Ltd.(“FAC”). FAC offers the service of assisting clients in their investment-related decisions and activities.
Three cases have recently been assigned to you for immediate assistance.

Case 1: Mrs. Klein
Mrs. Klein purchased an eight-year bond on 1 September 2020 at an issue price of R1 000. The terms attached to the bond are a fixed coupon interest rate of 10.39% compounded quarterly, payable on 31 August annually.
To counter for fluctuations in the future South African interest rate, the bond’s interest rate changes to a floating interest rate of 850 basis point above the JIBAR, compounded annually, in its fourth year, when the JIBAR is expected to increase to 4.15%.
Similar bonds are quoting annual yields of 11.7%.
Mrs. Klein is considering selling her bond to another investor as she is in need of cash.

Case 2: Flyer Ltd.
Flyer Ltd. (“Flyer”) is a clothing retailer. The company has branches nationwide. Currently, the entity would like to expand, but to facilitate this process, finance is required. Flyer’s management is considering issuing 500 ordinary shares to generate the required finances.
Flyer has a beta of 1.35 and is growing at 11% on average each year which is expected to stabilise at 7% after 5 years.
Long-term South African government bonds are yielding returns of 4.8%, while the return in the market is 11.75%. Flyer’s intention is to pay a dividend of 0.55 cents per share at the end of the first year, and then continue with the annual dividend payments in line with the growth rate.

Case 3: Mr. Mabuza
Mr. Mabuza is eager to purchase 15, 12.95% non-cumulative, non-redeemable preference shares with a par value of R90 each in Tag Ltd.(“Tag”).
Tag has not declared dividends in recent years and is only expected to start declaring dividends again in 2 years
Dividends will then be paid annually in arrears.
Similar preference shares are quoting yields of 12.8% annually.

Required:
1.1 Assist Mrs. Klein by calculating the current value of her bonds.
Assume today is 1 September 2021.

1.2. Flyer Ltd.’s management is uncertain of the current total value of the shares. Assist them by calculating the current total value of the shares.

1.3. Calculate the current value of the preference shares for Mr. Mabuza to guide him in the maximum value he should be willing to pay for the preference shares.

Round to two decimals where required.

Answer rating: 100% (QA)

answer 1 Find present value of the bond when par value or face value is Rs 100 coupon rate is 15 cur... View the full answer