- 9 Marks
FM – MAY 2019 – L2 – Q5a – Cost of capital
Calculate the price investors would be willing to pay for a bond and explain how changes in interest rates affect bond values.
Question
Anape Ltd is considering issuing a new 10-year bond in the domestic market. The interest rate on the bond is 20%. Interest will be paid semi-annually. The directors are considering the appropriate price at which the new bonds should be sold. The market required return is 25%.
Required:
- Compute the price investors would be willing to pay for each GH¢100 face value bond. (5 marks)
- Explain how changes in average interest rate affect the value of bonds. (4 marks)
(Total: 9 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Bond pricing, Interest rates, Market value of bonds
- Level: Level 2
- Topic: Cost of capital
- Series: MAY 2019
Report an error
- 9 Marks
FM – MAY 2019 – L2 – Q5a – Cost of capital
Calculate the price investors would be willing to pay for a bond and explain how changes in interest rates affect bond values.
Question
Anape Ltd is considering issuing a new 10-year bond in the domestic market. The interest rate on the bond is 20%. Interest will be paid semi-annually. The directors are considering the appropriate price at which the new bonds should be sold. The market required return is 25%.
Required:
- Compute the price investors would be willing to pay for each GH¢100 face value bond. (5 marks)
- Explain how changes in average interest rate affect the value of bonds. (4 marks)
(Total: 9 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Bond pricing, Interest rates, Market value of bonds
- Level: Level 2
- Topic: Cost of capital
- Series: MAY 2019
Report an error