Answer Happy

(a) How many years will it take an investment of $10,000 to grow to $20,000 if the investment pays 5.5% p.a. compounded every three months? (b) A company is planning to issue zero-coupon bonds to raise $2.2m. The bond will mature in 10 years. The interest on the bond will be compounded semi-annually, and the face value of the bond is $1,000. The market interest rate for similar bonds is 3.25%. i. How many zero-coupon bonds will need to be sold to raise the stated capital? ii. If an investor purchases the zero-coupon bond at the price determined in (i) and then sells the bond after 5 years for $850, what will be the investor's realised yield? (c) For a rapidly growing Japanese company, the growth rate is projected to be 20% for the next two years and 10% in the year afterwards. At the end of 3 years, the growth rate is expected to settle to 5% and remain so for the foreseeable future. The company is expected to pay a dividend of ¥250 per share next year. Assume that the investors' required rate of return for the company's shares is 17%. i. Determine the value of this company's share. ii. If the market price of the share is $2,500 per share, is the share a desirable purchase? Explain.