Question 3 (8.5 marks) Given are three bonds issued by Emaar, Etisalat and Du, e

Question

Question 3 (8.5 marks) Given are three bonds issued by Emaar, Etisalat and Du, each with a par value of AED 1,000 Emaar 8.1% Etisalat 3.9% 6.7% Coupon Years to maturity Question A (3 marks) Assume the interest is paid annually. Your required rates of return are as follows: Emaar-6%, Etisalat-7%, Du-9%. Calculate the value of the bonds. Question B (1.5 marks) Assume that the bonds are selling for the following amounts: Emaar Etisalat AED 1.220 AED 1,400 AED 980 LU Calculate the expected return of each bond Question C (1.5 marks) Calculate the value of each bond, if your required rate of return would decrease by 2 percentage points Question D (2.5 marks) Explain if you should buy the bonds and why

Explanation / Answer

3)A)Using calculator,

Value of Emaar bond :

FV=$1000

PMT=$81

N=13

I/Y=6%

CPT PV=$1186

B)If PV=1220, expected return (I/Y)=5.66%

C)If required return is 4%,

CPT PV=$1409

Value of Etisalat bond:

FV=$1000

N=9

PMT=39

I/Y=7%

CPT PV=798

If PV=1400,expected return=.445%

If yields is 5%,PV=$922

Value of Du bond:

N=8

I/Y=9

PMT=67

CPT PV=$873

B)If PV=980, yield is 7.03%

If yield is 7%, PV=$982.

Thank you.

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