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Question CorrectMark 1.00 out of 1.00A bond with an embedded put option:2Select one:Can be redeemed for par value, at the discretion of the issuerCan be redeemed for par value, at the discretion of the bondholder Can be redeemed for market value, at the discretion of the bondholderCan be redeemed for market value, at the discretion of the issuer
10/9/2019Quiz M34/18Question IncorrectMark 0.00 out of 1.00Rose Construction is a developer of housing complexes. Its business is the purchaseof land, the construction of houses, and the selling off of individual units. It reliesheavily on loans to ±nance its operations.Rose has identi±ed a new project and decides to raise $10 million via a bondoffering. Rose approaches Smythe Investment Bankers (SIB), who offer theirservices for free in the hope of securing future business with Rose. Due to the factthat Rose will only begin receiving income from its new project after many months,it does not wish to pay coupons on the bond, but would prefer to repay the entire parvalue at maturity of the bond, which they want to set for two years from now. Theywish to issue 100 000 bonds. SIB determines that the two-year spot interest rate is6.9%.Two weeks after the meeting with SIB two important events occur:The Federal Reserve raises interest rates by 25 basis points to combat in²ation;Fitch Ratings, a credit rating agency, raises Rose’s credit rating one level fromBBB to BBB+.What is the face value of each of Rose's zero-coupon bonds?3Question IncorrectMark 0.00 out of 1.00A 5%, semi-annual pay, $1000 par value bond will have a periodic coupon andpayment at maturity of:4
10/9/2019Quiz M35/18Question CorrectMark 1.00 out of 1.00Mzukisi Makapela is a 55-year old engineer from South Africa. He is meeting withhis ±nancial advisor to plan for his retirement. They have calculated that Mzukisiwill need R2 million when he retires in order to meet his retirement lifestyle goals.Mzukisi currently has a gross annual income of R100 000, which is taxed at 25%. Heis able to save 25% of his net income. Investment-related returns are taxed at 15%.His portfolio is currently worth R1.6 million. Mzukisi’s sister, Ntombi, is a 53-year old teacher. A week later she meets with herbrother’s ±nancial advisor who works out that she will need R2.5 million on the dayof her retirement to fund her retirement lifestyle goals. Her portfolio is currentlyworth R1.6 million. She must retire on the day she turns 60, which is 7 years fromthe present. Her net income is R60 000 per year, of which she saves 50%. She worksfor the government which means that her investment returns are not taxed. Ntombi and the ±nancial advisor determine that her risk tolerance is low. Themaximum volatility she can tolerate is 10%. The following portfolios are available forinvestment:5