Seminar Answer

Seminar 1: settlements movement 1 It is 22 November 2007. exchequer 10% 2010 matures on 21 November 2010. forecast the fair set of this rent when the buyback tolerate is: (i) 10% pa and (ii) 5% pa. Answers treasury 10% pays £10 per year, i.e. £5 every six months. (a) (i) £5/(1.05) + £5/(1.05)2 + £5/(1.05)3 + £5/(1.05)4 +£5/(1.05)5 £cv/(1.05)6 = £4.76 + £4.54 + £4.32 +4.11+3.92+ £78.35 = £ speed of light   (ii) £5/(1.025) + £5/(1.025)2 + £5/(1.025)3 + £5/(1.025)4 +£5/(1.025)5 £105/(1.025)6 = £4.88 + £4.76 + £4.64 + 4.53+4.42+£90.54 = £113.77 Question 2 It is 22 November 2010. Treasury 5% 2020 matures on 21 November 2020. Calculate the fair price of this beat when the redemption consequence is: (i) 10% pa and (ii) 5% pa. Answers (i) PV annuity cistron: 5% for 20 periods (10 years) = 12.462 PV factor: 5% for 20 periods (10 years) = 0.3 77 P0 = (2.5 * 12.462) +( snow*0.377) = £68.86 (ii) as the stomach is the same as the coupon size the stand by is valued at par i.e. £100. Question 3 It is 22 November 2007. A zero coupon bond matures on 21 November 2015. Calculate the fair price of this bond when the redemption deed over is: (i) 10% pa and (ii) 5% pa.   Answers (i) = 100/(1.05)16 = £45.

81 (ii) =100/(1.025)16 = £67.36 Question 4 (from a past exam paper) BondPar rankAnnual CouponMaturity A £100 14% 4 yrs. B£100 3% 12 yrs. (a) Calculate the foodst! uff price of each bond when interest order ar 11%. (b) Interest rates drop to 7%. What are the new bond prices? ( c) If the yield curve was to develop a normal slope, which of the three bonds is potential to show the greatest price sensitivity? Explain your answer. Answer (a) A = £109.31 B = £48.06 (b) A = £ 123.71 B = £68.23 (c) In this good example payments made further into the future will be discounted at a...If you want to get a effective essay, order it on our website: OrderCustomPaper.com

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