Semi-Annual Payment Bonds with the Same Risk (Aaa) and Maturity

question 104

Multiple Choice

Semi-annual payment bonds with the same risk (Aaa) and maturity (20 years) as your company's bonds have a simple (not EAR) yield of 9 percent.Your company's treasurer is thinking of issuing at par some R1,000 par value, 20-year, quarterly payment bonds.She has asked you to determine what quarterly interest payment, in rands, the company would have to set in order to provide the same effective annual rate (EAR) as those on the 20-year, semi-annual payment bonds.What would the quarterly interest payment be, in rands?

• A) R45.00
• B) R25.00
• C) R22.25
• D) R27.50
• E) R23.00

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Definitions:

Shareholder Value

The value delivered to shareholders because of management's ability to grow earnings, dividends, and share price.

RAP

Regulatory Accounting Principles, which are guidelines for accounting practices in the insurance industry.

Loan Charge-offs

The process by which a bank or other financial institution removes a loan from its balance sheet after determining that it will not be repaid and is, therefore, uncollectible.

Bank Capital

The funds that are held by a bank that are used as a cushion against potential losses, ensuring the bank's stability and financial health.