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AB acquired an investment in a debt instrument on 1 January 20X5 at its nominal value of $25,000, which it intends to hold until maturity. The instrument carried a fixed coupon interest rate of 5%, payable in arrears. Transactions costs of $5,000 were paid in respect of this investment. The effective interest rate applicable to this instrument was estimated at 9%.

Calculate the value of this investment that AB will include in its statement of financial position at 31 December 20X5.

Give your answer to the nearest whole number.

$ ?

Options:

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Question 2

LM are just about to pay a dividend of 20 cents a share. Historically, dividends have grown at a rate of 5% each year.

The current share price is $3.05.

The cost of equity using the dividend valuation model is:

Options:

12.4%

11.9%

7.4%

6.9%

Question 3

The yield to maturity of a redeemable bond is calculated as the internal rate of return of the relevant cash flows associated with the bond.

Which TWO of the following are considered relevant cash flows in this calculation?

Options:

The annual interest payments net of tax relief.

The redemption value of the bond at the date of redemption.

The market value of the bond now.

The nominal value of the bond now.

The value of the conversion premium on conversion to equity shares.

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