Accounting & Finance Question Answer 2022

Running head: ACCOUNTING AND FINANCE
Accounting & Finance
Name of the Student:
Name of the University:
Author’s Note:

ACCOUNTING AND FINANCE1
Table of Contents
A Mini Case Bonds..........................................................................................................................2
B: Exercise.......................................................................................................................................5
C. Efficient Market Hypothesis.......................................................................................................7

ACCOUNTING AND FINANCE2
A Mini Case Bonds
Q1) The key obligations of a bond issuer would be as follows:
 The issuer has to repay interest on a periodic basis and also has to pay timely the capital
amount upon the maturity date.
 Maintain sufficient liquidity in order to pay out the interest amounts and maintain a sound
financial position.
Q2) i)If a yield curve is upward sloping then it well states that long term interest rates are greater
than the short-term bonds. The risk will be for the bond issuer would be in the form of higher
interest cost for the long-term bond as investors are expecting a higher return for investing into
long-term bond. On the other hand, from an opportunity view point the company can well issue
short term bonds for raising funds as short-term interest rates are generally low as compared to
long-term bonds.
ii) The demand for long-term bond is higher and shorter for short-term bonds.
Q3) i) The theoretical fair value of the bond is well determined by well discounting the coupon
payments and maturity value with the help of a discount factor. The key factor which are taken
into account is the time, interest rate, maturity and coupon rate.
ii) The key factor which is sensitive to valuation of bond is the interest rate.
Q4) The value of the 5-Year Bond would be the present value of coupon rate of bond that is 8%
of 1000 ($80), that would be flowing to investor for a sum of five years, plus the maturity value

ACCOUNTING AND FINANCE3
of $1000 that would be coming after a sum of five years. Discounting of these cash flows would
be done by using a interest rate of 8%.
Q5) i) If the required return or interest rate rises then the prices of the bond would be falling
down.
Particulars Amt.
Face Value 1000
Coupon Rate 8%
Interest Rate 8%
Time 5
Present
Value -1000.00
Particulars Amt.
Face Value 1000
Coupon Rate 8%
Interest Rate 10%
Time 5
Present
Value -924.18
ii) We would now be having a discount bond.
iii) Graphical Movement of the price of bond along with the movement in the time frame: