Question

Part F.2

The following information is for solving Questions 49 to 52

On April 1^st, 2018, Yugo purchased a corporate bond of IJK Limited for its face value of $1,000. The bond pays a 4.5 percent coupon rate, which are paid semi-annually, and it will be maturing on April 1^st, 2028. On April 1^st, 2020, similar bonds are paying a coupon rate of 2.5 percent, and Yugo plans to sell his bond.

Question 50

What would be the market price of the IJK bonds on April 1st, 2020, based on the market coupon rate?

Question 50 options:

	$1,038.78
	$1,000.00
	$990.59
	$995.15
	None of the Above

Question 51

What would be the capital gains/loss ($ dollar amount) would Yugo receive from selling the IJK bond?

Question 51 options:

	$38.78
	$0.00
	-$94.10
	-$48.50
	None of the Above

Question 52

What would be the capital gains/loss (% percent return) would Yugo receive from selling the IJK bond?

Question 52 options:

	-0.49%
	3.88%
	-0.94%
	0.00%
	None of the Above

Answer 1

50) None of the Above

We use a financial calculator to solve the problem

Now, there are 8 years remaining to bond maturity

I/Y = 2.5%/2 (Since the market rate of interest is divided by 2 for a periodic rate of interest)

nper = 16 (Since 8 years are remaining for bond maturity, the total number of period =8*2=16)

PMT = -45/2 (4.5% of 1000 coupon payment annually is (4.5%/2)*1000 per period)

FV = -1000 (Since the face value if 1000)

Bond price on April 1st, 2020  = $1144.20

51) None of the Above

Yugo purchase price = $1000

Yugo selling price = $1144.20

Capital gain = 1144.20-1000 = $144.20

52) None of the Above

Capital gains % = (144.20/1000)*100 = +14.42%