(a) Explain TWO(2) features of corporate bonds as a long-term debt instrument. (8 marks) (b) Milkot...

(a) Explain TWO(2) features of corporate bonds as a long-term debt instrument.

(b) Milkot Berhad issues a 15-year bond of RM1,000 that pays RM85 annually. The market price for the bond is RM960. Your required rate of return is 9%. Calculate the following:

(i) What is the value of the bond to you?

(ii) What is the value if your required rate of return increases to 11%?

(iii) What will be the value if your required rate of return decreases to 7%?

(iv) Based on (ii) & (iii) above, under which circumstances should you purchase the bond.

Expert Solution

bond holders get fixed rate of interest throughout the maturity period.

Bonds are issued for long period of time ranges between 20-100 years .Generally bonds are issued for 40 years.

Bond have a call option which help company to call the bond before maturity of bond. Generally such bond issue for the protection of company when the investor are ready to pay money at lower interest rate at such time company redeem its bond before maturity and reissue new bond.

jeff jeffy answered 7 months ago

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