GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS
Student ID
Student name: Võ Thành Đại number: 22003895
Student ID
Student name: Giang Mỹ Hân number: 22003069
Student ID
Student name: Lê Thành Tân number: 22002616
Student ID
Student name: Nguyễn Thái Tùng number: 21000752
Student ID
Student name: Phan Nam Tuấn Minh number: 22003488

UNIT AND TUTORIAL DETAILS

Unit name: Corporate Finance Unit number:
Tutorial: Class day and time: Tuesday 12:00 -15:15
Lecturer or Tutor name: Nguyen Duc Nguyen

ASSIGNMENT DETAILS
Title: Exercise 3
Length: Due date: 25/10/2023 Date submitted: 25/10/2023

DECLARATION
 I hold a copy of this assignment if the original is lost or damaged.

 I hereby certify that no part of this assignment or product has been copied from any other student’s
work or from any other source except where due acknowledgement is made in the assignment.
 I hereby certify that no part of this assignment or product has been submitted by me in another
(previous or current) assessment, except where appropriately referenced, and with prior
permission from the Lecturer / Tutor / Unit Coordinator for this unit.
 No part of the assignment/product has been written/ produced for me by any other person except
where collaboration has been authorised by the Lecturer / Tutor /Unit Coordinator concerned.
 I am aware that this work may be reproduced and submitted to plagiarism detection software programs
for the purpose of detecting possible plagiarism (which may retain a copy on its database for future
plagiarism checking).
Student’s signature: Giang Mỹ Hân
Student’s signature: Võ Thành Đại
Student’s signature: Lê Thành Tân
Student’s signature: Nguyễn Thái Tùng
Student’s signature: Phan Nam Tuấn Minh
Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above declaration has
not been signed.
 List of group members

Student ID Full name

22003069 Giang Mỹ Hân

22003895 Võ Thành Đại

22002616 Lê Thành Tân

21000752 Nguyễn Thái Tùng

22003488 Phan Nam Tuấn Minh

The contribution of each member

Name Contribution (%) Contribution (%) Contribution (%) Contribution (%) Contribution (%)
Võ Thành Đại Giang Mỹ Hân Lê Thành Tân Nguyễn Thái Tùng Phan Nam Tuấn
Minh

Võ Thành Đại 100% (self) 100% 100% 100% 100%

Giang Mỹ Hân 100% 100% (self) 100% 100% 100%

Lê Thành Tân 100% 100% 100% (self) 100% 100%

Nguyễn Thái Tùng 100% 100% 100% 100%(self) 100%

Phan Nam Tuấn Minh 100% 100% 100% 100% 100%(self)

Average 100% 100% 100% 100% 100%

Signature Thành Đại Mỹ Hân Thành Tân Thái Tùng Tuấn Minh
Problem 1: Answer the following questions. In addition, for each answer: construct a simple
example to illustrate.
a. If interest rates rise, do bond prices rise or fall?
-Interest rates have an inverse relationship with bond prices. When the interest rates rise, bond prices
usually fall and vice versa.
For example:
An investor buys a bond for $1,000 with a 10-year maturity and a coupon rate of 2%.The par value
would be $1,000. After 10 years, the investor will receive their $1,000 principal, with $200 in interest,
barring default.

Same as the above case but the interest rate is 3%. After 10 years, they'll receive their $1,000
principal, after collecting $300 interest.

So a bond with a 2% interest rate becomes less valuable because it generates less income. Essentially,
its market value decreased. If investors want to sell the bond before the end of the 10-year term, they
may have to sell it for less than $1,000.

b. If the bond yield to maturity is greater than the coupon rate, is the price of the bond greater
or less than face value?
If the bond yield to maturity value is higher than the coupon rate, the bond would be sold at a
discount. If both rates are equal, the bond will be sold at par value, and if coupon rate is more than
YTM, the bond will be sold at premium.

For example: Bond A with 10 years to maturity has face value: $1000, Coupon interest: 10%, Yield to
maturity: 12%

BV =C × ¿ ¿

=> BV < FV (discount bond)

c. If the price of a bond exceeds face value, is the yield to maturity greater or less than the
coupon?
-If the bond price exceeds the par value, it means bond YTM is less than the coupon rate. In this
situation bonds are generally sold at a price higher than the par value.
For example:
Bond A with 7 years to maturity has the following information: Face value: $1000 ; Coupon interest:
5% ; The current price of the bond: $1200.

−t
(1−( 1+ R ) ) F
BV =C × +
R (1+ R)
t

−7
(1−( 1+ R ) ) 1000
1200=(1000 ×5 % )× +
R (1+ R)
7
 ¿> R=1.92 % < 5%
So that it can be concluded that if the price of bond exceeds face value, the yield to maturity is greater
than the coupon.

d. Do high-coupon bonds sell at higher or lower prices than low-coupon bonds?

When compared to bonds with lower coupon rates, higher coupon bonds are often offered at a higher
price if the coupon rate exceeds the YTM since they are often discounted.
−t
(1−( 1+ R ) ) F
BV =C × + =PV of the coupon+ PV of the face value
R (1+ R)
t

For example:
Bond A with 5 years to maturity has the following information:
Face value (F): $1,000
Coupon interest (C): 10% → Bond value = $1,123.06
YTM (R) : 7%
When C = 12% → Bond value = $1,205.01
=> People are willing to pay for high-coupon bonds since it has more profit at the end of maturity.

Problem 2:
Company A has the following information:
- Dividends are expected to grow at a rate of 15% for the next 6 years.
- Then, the growth rate drops to 4% thereafter.
- The company just paid a dividend of $2.65.
Calculate the current share price if the required return is 10%.

0 1 2 3 4 5 6 7
2,65 x 1,15 3 4 5 6 6
2 . 65× 1. 15 2 . 65× 1. 15 2 . 65× 1. 15 2 . 65× 1. 15 2 . 65× 1. 15 ×1 . 04
2
2 , 65× 1 ,15

D7 6
2 , 65 ×1 , 15 × 1 ,04
P 6= = =$ 106.25
R−g 0 , 1−0 , 04

2 3 4 5
2.65 x 1.15 2 . 65 ×1 .15 2. 65 ×1 . 15 2 .65 × 1. 15 2. 65 ×1 . 15 106.25
PV = + 2
+ 3
+ 4
+ 5
+ 6
1.1 1.1 1.1 1 .1 1. 1 1.1
¿ $ 78.605