FTL821D. Question 4 (Chapter 3, Valuation of Securities) (21 Marks) As a way of...
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FTL821D. Question 4 (Chapter 3, Valuation of Securities) (21 Marks)
As a way of raising finance to finance capital projects, suppose your organization has issued a N$ 1 000 bond with a coupon rate of 8% per annum, and promises to pay back the principal in five years time. Suppose the current market interest rate on similar bonds is 12%.
Required: You are to advise your organization on the cheapest option: Marks 4.1. Value of the bond today when coupons are paid annually. 5 4.2. Value of the bond today when coupons are paid half-yearly or bi-annually. 5 4.3. Value of the bond today when coupons are paid quarterly. 5 4.4. Value of the bond today when coupons are paid daily. (Assume 360 days calendar year)5 Total marks for calculations 20 Recommendation mark 1 Total marks for Question 4 21
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