# mid-sem 2006 - UNIVERSITY OF MALAYA MID-SEMESTER...

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UNIVERSITY OF MALAYA MID-SEMESTER EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION ACADEMIC YEAR 2006/2007 – SEMESTER 1 CFGB6102: CORPORATE FINANCE SEPTEMBER 2006 TIME: 2 HOURS 1. Assume that you wish to purchase a bond with a 30-year maturity, an annual coupon rate of 10 percent, a face value of RM1,000, and semiannual interest payments. If you require a 9 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? a. RM905.35 b. RM1,102.74 c. RM1,103.19 d. RM1,106.76 e. RM1,149.63 2. A bond has an annual 8 percent coupon rate, a maturity of 10 years, a face value of RM1,000, and makes semiannual payments. If the price is RM934.96, what is the annual nominal yield to maturity on the bond? 3. A bond has an annual 11 percent coupon rate, an annual interest payment of RM110, a maturity of 20 years, a face value of RM1,000, and makes annual payments. It has a yield to maturity of 8.83 percent. If the price is RM1,200, what rate of return will an investor expect to receive during the next year? 4. You intend to purchase a 10-year, RM1,000 face value bond that pays interest of RM60 every 6 months. If your nominal annual required rate of return is 10 percent with semiannual compounding, how much should you be willing to pay for this bond?

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CBGB 6109/2 5. Assume that you wish to purchase a 20-year bond that has a maturity value of RM1,000 and makes semiannual interest payments of RM40. If you require a 10 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? a. RM619 b. RM674 c. RM761 d. RM828 e. RM902 6. A RM1,000 par value bond pays interest of RM35 each quarter and will mature in 10 years. If your nominal annual required rate of return is 12 percent with quarterly compounding, how much should you be willing to pay for this bond? 7. Consider a RM1,000 par value bond with a 7 percent annual coupon. The bond pays interest annually. There are 9 years remaining until maturity. What is the current yield on the bond assuming that the required return on the bond is 10 percent? 8. FBS Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at that time. The current risk premium on BBB bonds versus government bonds is half what it was two years ago. If the risk-free long-term governments are currently yielding 7.8 percent, then at what rate should FBS expect to issue new bonds?
CBGB 6109/3

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