solution

GG fund invested in 1,000 units of 7 percent, 15-year, RM1,000 bond issued by SLC

Bhd. The bond was issued on 1/11/2018 at par. The firm bought the bonds on 1/11/2021

when the bond was selling at 2% discount. The firm intends to sell back all the bond when

the interest rate is expected to be at 5% on 1/11/2026. Throughout the period of holding

the bond, the firm reinvest all the coupons received in an investment alternative that pays

8% interest for the 1st 3 years and 9% interest for the remaining years. You

are required to assist GG fund to determine:

i) their total yield from this bond investment

ii) total capital gain from this investment

Solution:

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