Consider that Mr

Subject:FinancePrice:2.86 Bought32

Share With

Consider that Mr. Ali was offered to invest in a bond that has a par value of R.O 20,000 and pays 5% coupon rate at the end of each year in coupon payments and has 3 years remaining until maturity. Assume that the prevailing annualized yield of the bond is 8%, with additional data of (present value annuity is = 2.577 and present value is 0.794)

1- If the computed Price of bond is higher than the par value, what category of bond is it?

a.

None of the given option

b.

Premium Bond

c.

Par Bond

d.

Discount Bond

2- If the computed Price of bond is less than the par value, what category of bond is it?

a.

Discount Bond

b.

None of the given option

c.

Premium Bond

d.

Par Bond

3- Based on the case, if the annualized yield is changed to 10% then:

a.

The PVBo will be higher and Mr.Ali will pay less.

b.

It is not good to Mr. Ali since he will have less return

c.

The PVB0 will be less and Mr. Ali will pay more.

d.

It is good for Mr. Ali, since he will have more return.

4- If the coupon rate is increased and becomes 10%, how much would be the new coupon payment?

a.

2,000 OMR

b.

1,600 OMR

c.

None of the given option

d.

1,000 OMR

5- How much is computed coupon payment at the end of each year?

a.

500 OMR

b.

None of the given option

c.

1,500 OMR

d.

1,000 OMR