Max Marks: 10

Question 01:

Company A has out standing Rs.1,000 par value bonds with maturity period of 15 years from now and Company B has outstanding Rs.500 par value bonds with maturity period of less than one year from now.

Both the bonds have coupon rates of 10% p.a, and the interest is paid semi-annually on both the bonds.

Explain that which company’s bonds would have high interest rate risk and why. Marks: 03

Question 02:

A public limited company has outstanding an Rs.1000 face value bond with a 15% percent coupon rate and five years to final maturity. The interest on these bonds is paid semi-annually.

What value should you place on this bond if your nominal annual required rate of return is (i) 12% (ii) 16%?

Marks: 04

Question 03:

Suppose you are working in an investment company as a Financial Analyst. Your company wants to invest in zero-coupon bonds of Pak Steels Limited. These bonds have a face value of Rs.2000 per bond and have five years to maturity. If your company decided to have a 10% p.a return on this investment, then what price would you recommend per bond to purchase these zero-coupon bonds of Pak Steels Limited?

Marks: 03