Problem
Farhad just retired and received a gratuity of RM150,000. He is interested to invest in bond market as the risk is lower as compared to equity market. He has two bond options either USB telecommunication or ABS telecommunications. USB telecommunication is offering a coupon payment of 8 percent compounded quarterly with maturity of 5 years. The market price of USB bond is RM1150. While ABS telecommunication is offering a coupon payment of 7 percent annually with maturity of 10 years and the market price is RM650. Both bonds have a required rate of return of 12 percent.
Based on the intrinsic value of bond, advise which bond should Farhad purchase.