Question

You are evaluating an investment that will pay you $5,000 in two years and $6,000 in four years. If your required return is 8%p.a. compounded annually, how much is this investment worth?
$9,430.73
$8,696.87
$8,085.33
$10,185.19

Which of the following is NOT a characteristic of equity?
There is no maturity date.
Shareholders are paid last and receive whatever is left after paying operating expenses and debt holders.
Dividend payments are fixed and do not change year to year.
Dividend payments are at the discretion of the board of directors.

JKL Ltd bonds have exactly 20 years remaining until they mature. The bonds have a face value of $10,000 and pay semi-annual coupons at a rate of 6.8%p.a. If the current market yield for these bonds is 5.3%p.a., what is the current price of JKL Ltd bonds. (all interest rates in this problem are quoted as APRs with semi-annual compounding).
$11,836.03
$11,822.68
$8,385.89
$8,373.23

Answer 1

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

1)

Present value = 5000/1.08^2 + 6000/1.08^4

= 8696.87

2)

Shareholders are paid last and receive whatever is left after paying operating expenses and debt holders.

3)

price of coupon = Coupon payment per period * [1-(1+i)^-n]/i + par value/(1+i)^n

i = interest rate per period

n = number of periods

= (680/2) * [1-(1+0.053/2)^-40]/(0.053/2) + 10000/(1+0.053/2)^40

= 11836.03