a) A corporate bond with RM1000 maturity value carries a 7.5% coupon rate. It currently makes interest payments semi-annually.

a) A corporate bond with RM1000 maturity value carries a 7.5% coupon rate. It currently
makes interest payments semi-annually.
(i) This 12-year bond currently sells for RM961.88. What is the rate of return on this
bond?
(ii) If the bond sold for RM1,030.32, what is the rate of return on this bond?
(8 marks)
b) Briefly explain the cash flows associated with a bond to the investor.
(3 marks)
c) What is the relationship between interest rates and bond prices? When is a bond sold at (i)
a premium, (ii) at a discount, and (iii) at par?
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