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BM2102 Introduction to Finance (PRD1 A 2024/25)

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A bond is issued today by the government. It has a nominal value of $500. The bond pays an annual coupon of 7.5% and matures in 3 years. The interest rate is 7% and the expected inflation rate is 5%. Which of the following statements is correct:
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Which of the following are not typically specified on a government bond:
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Is the following statement true or false?

“A government bond will specify the dates of all cashflows,

the coupon rate, and the principal (or face) value of the bond. A share will

only specify the number of shares it represents.

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You are a bond trader. You manage $100m invested in US government bonds. This money must always be invested in government bonds. You are not allowed to invest in equities or in cash. You currently have $50m invested in a bond with a ten-year maturity paying a 3% coupon, and another $50m invested in a bond with a two-year maturity paying a 10% coupon. You are considering – but have not yet invested in -- a third bond which has a ten-year maturity and a 7% coupon. All bonds have a $1,000 nominal value.

You think interest rates will rise significantly in the near future. Which of the following is the best trading strategy:
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You are head of human resources for a large company. Staff turnover is a big problem for the company. Every worker that quits means you need to spend, on average, to replace them. This is made up of in overtime paid to cover their work until a replacement is found, in direct recruitment costs, and a further on training their replacement. At present, the company loses workers per year.

A HR consultant recommends that you initiate a scheme designed to improve staff wellbeing and that is expected to reduce staff turnover. It is predicted that staff turnover will fall to workers each year the scheme runs. The scheme lasts for four years. Once the scheme ends, you expect staff turnover to return to normal levels.

 The scheme costs paid up-front. If the firm’s hurdle rate is , what is the net present value of the scheme (to the nearest dollar)?
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Aristotle Inc is expected to pay a dividend of cents per share next year. Dividends are expected to grow by

each

subsequent year. If the discount rate is

, what is the share price of

Aristotle Inc today (expressed in dollars to two decimal places)?

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Suppose a three-year government bond has a face value of 1000 and a coupon rate of 6% paid annually. Its market price is 965.23. Which of the following statements is true:
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