You are instructed by the Senior Finance Manager to evaluate the following bonds and offer your...

 

 

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You are instructed by the Senior Finance Manager to evaluate the following bonds and offer your valuable recommendation: Coupon rate (annual Bond payments) A B 0% 0% 4% 8% Maturity (years) 15 10 15 10 Required: 1. Compute the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%.. (4 marks) 2. Based on your answer in part 1, (i) Assess the bond that is most sensitive to a 1% drop in interest rates from 6% to 5%. (1 mark) (ii) Assess the bond that is least sensitive to a 1% drop in interest rates from 6% to 5%. (1 mark) 3. Based on your answer in part 2, critically evaluate the rationale behind for selecting such bond. Provide an intuitive explanation for your answer. Hint: you need to explain your answers based on part 2 (i) and (ii). (4 marks) CD Carol Smith has been offered the following deal: An accounting firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to 8 hours of her time every month. Smith's rate is $550 per hour and her opportunity cost of capital is 15%. Evaluate what IRR and NPV rules advise regarding this opportunity. (10 marks) You are instructed by the Senior Finance Manager to evaluate the following bonds and offer your valuable recommendation: Coupon rate (annual Bond payments) A B 0% 0% 4% 8% Maturity (years) 15 10 15 10 Required: 1. Compute the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%.. (4 marks) 2. Based on your answer in part 1, (i) Assess the bond that is most sensitive to a 1% drop in interest rates from 6% to 5%. (1 mark) (ii) Assess the bond that is least sensitive to a 1% drop in interest rates from 6% to 5%. (1 mark) 3. Based on your answer in part 2, critically evaluate the rationale behind for selecting such bond. Provide an intuitive explanation for your answer. Hint: you need to explain your answers based on part 2 (i) and (ii). (4 marks) CD Carol Smith has been offered the following deal: An accounting firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to 8 hours of her time every month. Smith's rate is $550 per hour and her opportunity cost of capital is 15%. Evaluate what IRR and NPV rules advise regarding this opportunity. (10 marks)