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Category > Management Posted 11 Oct 2017 My Price 9.00

PALMA CO, ZICO CO & REX CO.

PLEASE ANSWER (B), (D), (E), (F), (G)

THANKS

The following is the data on $ 1,000 par value bonds issued by PALMA CO, ZICO CO & REX CO. at the end of 2005. Assume that you are thinking of buying these bonds as of January 2006. Answer the following questions for each of the bonds.

(a) Calculate the values of the bonds if your required rates of returns are as follows: PALMA. Co 6%, ZICO CO 9% & REX 8%

 

PALMA CO

ZICO CO

REX CO

Coupon Interest Rate

7.8%

7.5%

7.975%

Years to Maturity

10

17

4

(b) In December 2005, the bonds were selling for the followings amounts:

PALMA CO

$ 1,030.

ZICO CO

$    973

REX CO

$ 1,035

What were the expected rates of return for each bond?

(c) How would the values of the bonds change if:

     (i) Your required rate of return increases by 3% points?                

     (ii) Your required rate of return decreases by 3% points?  

(d) Explain the implications of your answers in question (b) and (c) as they relate to interest rate risk, premium bonds and discount bonds.     (2 marks)

 

(e) Compute the duration for each of the bonds. Interpret your results.    (10 marks)

 

(f) What are some of the things you can conclude from the above computations?  

(3 marks)

 

(g) Should you buy the bonds? Explain.

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Oct 2017 09:10 AM My Price 9.00

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