Fin – assignment 2

  

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Q1. Suppose Abdulrahman Plan to borrow a loan of SAR 120,000 now and will repay it in 10 equal annual installments. If the bank charges 10% interest, What will be the amount of the annual installment?    

 

Q2. Briefly discuss the Time Value of Money concept?    

Q3. Ahmed has been offered a 10-year bond issued by Homer, Inc., at a price of $800. The bond has a coupon rate of 7 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today.  

a. What should be the price of this bond?

b. Should Ahmed buy the bonds at the offered price?

Q4. Suppose a 3 year bond with a 6% coupon rate that was purchased for $760 and had a promised yield of 8%. Suppose that interest rates increased and the price of the bond declined. Displeased, you sold the bond for 798.8 after having owned it for 1 year. What should be the realized yield ?

Instructions:

1. This Assignment must be submitted on Blackboard (WORD format only) via the allocated folder.

1.
Email submission will not be accepted.

1. You are advised to make your work clear and well-presented; marks may be reduced for poor presentation. This includes filling your information on the cover page.

1. Assignment will be evaluated through BB Safe Assign tool.

1. Late submission will result in ZERO marks being awarded.

1. The work should be your own, copying from students or other resources will result in ZERO marks.

1. Use Times New Roman font 12 for all your answers.

Assignment Questions

Q1. Suppose Abdulrahman Plan to borrow a loan of SAR 120,000 now and will repay it in 10 equal annual installments. If the bank charges 10% interest, What will be the amount of the annual installment? (1 Mark)

Ans:

Q1. Briefly discuss the Time Value of Money concept? (1 Mark)

Ans:

Q3. Ahmed has been offered a 10-year bond issued by Homer, Inc., at a price of $800. The bond has a coupon rate of 7 percent and pays the coupon semiannually. Similar bonds in the market will yield 10 percent today. (2 Marks)

1. What should be the price of this bond?

1. Should Ahmed buy the bonds at the offered price?

Ans:

Q4. Suppose a 3 year bond with a 6% coupon rate that was purchased for $760 and had a promised yield of 8%. Suppose that interest rates increased and the price of the bond declined. Displeased, you sold the bond for 798.8 after having owned it for 1 year. What should be the realized yield ?

(1 Mark)

Ans:

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