a. What will be the total interest earned on the bond over the next four years?

b. What will be the face value received at maturity?

Given the following projected income stream for Bond #1:

c. What is the total cash available over the next four years to the bondholder earning 10%?

d. What is the total cash available over the next four years to the bondholder earning 15%?

e. What is the average annual rate of return for the bondholder earning 10%? (Hint: Use the

market price of 930.50.)

f. What is the average annual rate of return for the bondholder earning 15%? (Hint: Use the

market price of 930.50.)

g. Why does the reinvestment rate affect the annual rate of return for the same bond?

h. If the expected rate of return on our bonds is 10%, what is the duration of Bond #1?

Multimedia University Faculty of Business BBF2134 FINANCIAL MARKETS AND INSTITUTIONS GROUP ASSIGNMENT Trimester 1, 2016/2017 Due date: 5th September 2016 General information: Organisation Group (group members shall not exceed 5 students per group) Assessment This assignment contributes 25% to the total marks. Assignment/group registration (if any) Please submit your group names to your section tutor by Week 2 Student Learning Time This assignment shall take 50 hours to complete. Submission to Cover page Typeface/Font Font size Line spacing Submission requirements Margins Length Reference format Binding Respective Section Tutor Please use the attached cover page Times New Roman 12 1.5 Top: 2.54 cm; Bottom: 2.54cm; Left: 2.54cm; Right: 2.54cm Maximum 10 pages, excluding preliminary pages and appendices APA Style Stapled only. No Comb binding and Plastic cover required. Instructions: Based on the case study given, answer all the questions. It is COMPULSORY for students to provide formula and complete working in the calculation part. The assessment is as below: Assessment Criteria i) Contents of Report Part A : (2.5M x 26 = 65 Marks) Part B: (35 Marks) Total Marks Marks Allocation 65 35 100 (25%) 1 PART A CASE STUDY: Interest Rates, Bond Yields, and Duration You have been hired to analyze the debt securities of your organization. The firm has outstanding loans and bonds. A quick review of the balance sheet shows the following: Questions: 1. 2. 3. 4. How much interest would the firm pay each year on the simple-interest loan? How much would you write a check for to pay off the simple loan in one year? What is the monthly payment needed to pay off the fixed-payment loans? What is the current yield for each bond if the current price is: a. $930.50 for Bond #1? b. $859.50 for Bond #2? 5. What is the expected yield to maturity for each bond? a. Bond #1 selling for $930.50? b. Bond #2 selling for $859.50 6. What is the rate of capital gain if both bonds sell for $900.00 in one year? a. Bond #1 selling for $930.50 today? b. Bond #2 selling for $859.50 today? 7. If the Yield to Maturity expected by investors changes to 11%: a. What will be the market price of Bond #1? b. What will be the market price of Bond #2? c. What will be the dollar change in price for Bond #1? d. What will be the dollar change in price for Bond #2? e. What will be the percent change in price for Bond #1? f. What will be the percent change in price for Bond #2? g. Since the change in expected yield to maturity is the same, why is the amount of change different between the bonds? 2 8. If investors holding our 4-year bonds (Bond #1) receive interest income annually for four years, plus the face value of the bonds at maturity, a. What will be the total interest earned on the bond over the next four years? b. What will be the face value received at maturity? Given the following projected income stream for Bond #1: c. What is the total cash available over the next four years to the bondholder earning 10%? d. What is the total cash available over the next four years to the bondholder earning 15%? e. What is the average annual rate of return for the bondholder earning 10%? (Hint: Use the market price of 930.50.) f. What is the average annual rate of return for the bondholder earning 15%? (Hint: Use the market price of 930.50.) g. Why does the reinvestment rate affect the annual rate of return for the same bond? h. If the expected rate of return on our bonds is 10%, what is the duration of Bond #1? 9. What is the yield to maturity on the Treasury Bills (a discount bond)? 10.What is the real rate of interest if the nominal rate is 10% and the inflation rate is 3%? PART B SUMMARY OF ARTICLE OR CASE STUDY Instructions: 1. Using your Internet research skills, find 1 article/ case study from the Journal of Case Research in Business and Economics/ Asian Case Research Journal/ Wall Street Journal/ New York Times, or The Economist. 2. The TITLE that you choose must be related to any topic of this subject. 3. Summarize the article/ case study in not more than 5 pages. 3 Reminders: Plagiarism Plagiarism is a serious offence. Plagiarism include the following behaviours (but not limited to): o copy another student's work, o fail to properly cite other people's work or give proper credit to the original source, o hire or ask another individual to complete the assignment for you, o copy too many words or ideas from one or two sources, that makes up a significant portion of your work, even with proper citation. The lecturer has the rights not to accept submission of plagiarised or duplicated work. Group work Each group member must actively participate in the completion of the assignment. Free-riding is unethical and extremely unfair to fellow group members. Each group member is expected to keep the contact numbers and e-mail addresses of the other members of the group. The group leader has the responsibility to ensure that all group members play a part in the completion of the assignment. The group leader is also responsible to ensure that all members' names are written on the final submission. It is the responsibility of each group member to ensure that the final submission is complete and of the acceptable standard. Should any errors or omission occurred in the final submission, each group member is held accountable for negligence - in other words, failure to perform their responsibilities as expected. 4 General Marking Criteria that Lecturers/Tutors can refer to when marking assignment. Score 80% - 100% Description Demonstrate complete understanding of the problem Original contribution Clear evidence of creativity All requirements are included. Report is well organised, with proper formatting and preliminary pages All references are properly quoted and referred. 60% - 79% Demonstrate sufficient understanding of the problem Original contribution Some evidence of creativity All requirements are included. Report is well organised, with proper formatting and preliminary pages All references are properly quoted and referred. 40% - 59% Demonstrate partial understanding of the problem. Some original contributions Some evidence of creativity Most requirements are included. Report is not organised, no proper formatting and preliminary pages References are not properly quoted and referred. 20% - 39% Demonstrate little understanding of the problem No evidence of original contribution No evidence of creativity Many requirements are not included. Report is not organised, no proper formatting and preliminary pages References are not properly quoted and referred. 0% - 19% Misunderstood the problem. No evidence of original contribution No evidence of creativity Significant requirements are not included. Report is not organised, no proper formatting and preliminary pages References are not properly quoted and referred. 5 Multimedia University Faculty of Business ATTACHMENT COVER PAGE TEMPLATE 6 BBF2134 FINANCIAL MARKETS AND INSTITUTIONS Trimester 1, 2016/2017 Insert assignment title Submission date: DD MM YYYY Tutor: [Insert Tutor Name here] Prepared by: Student ID Student Name Declaration by group leader (This section is to be filled in the student's own handwriting.) I hereby declare that all group members' names are correctly included in the above section. I hold a copy of this assignment which I can produce if the original is lost or damaged. I certify that no part of this assignment has been copied from any other student's work or from any other source except where due acknowledgement is made in the assignment. Group leader's signature : _____________________________ Group leader's name : _____________________________ Group leader's student ID : _____________________________ Group leader's H/P no : _____________________________ Date : _____________________________ Group member's declaration (Each group member, including the group leader, must individually fill up and submit this form, in the student's own handwriting. This form is to be inserted in the final submission.) Group member's name : ____________________________ Student ID : ____________________________ For the purpose of completing this assignment, I have performed the following tasks (please list): ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ I hereby declare that I have assessed the final submission and I take full responsibility should there be any inaccuracies, incompleteness, omissions, delays or non-submission. Group member's signature : ________________________________ Group member's name : ________________________________ Group member's ID : ________________________________ Date : ________________________________ Group member's declaration (Each group member, including the group leader, must individually fill up and submit this form, in the student's own handwriting. This form is to be inserted in the final submission.) Group member's name : ____________________________ Student ID : ____________________________ For the purpose of completing this assignment, I have performed the following tasks (please list): ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ I hereby declare that I have assessed the final submission and I take full responsibility should there be any inaccuracies, incompleteness, omissions, delays or non-submission. Group member's signature : ________________________________ Group member's name : ________________________________ Group member's ID : ________________________________ Date : ________________________________ Group member's declaration (Each group member, including the group leader, must individually fill up and submit this form, in the student's own handwriting. This form is to be inserted in the final submission.) Group member's name : ____________________________ Student ID : ____________________________ For the purpose of completing this assignment, I have performed the following tasks (please list): ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ I hereby declare that I have assessed the final submission and I take full responsibility should there be any inaccuracies, incompleteness, omissions, delays or non-submission. Group member's signature : ________________________________ Group member's name : ________________________________ Group member's ID : ________________________________ Date : ________________________________ Group member's declaration (Each group member, including the group leader, must individually fill up and submit this form, in the student's own handwriting. This form is to be inserted in the final submission.) Group member's name : ____________________________ Student ID : ____________________________ For the purpose of completing this assignment, I have performed the following tasks (please list): ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ I hereby declare that I have assessed the final submission and I take full responsibility should there be any inaccuracies, incompleteness, omissions, delays or non-submission. Group member's signature : ________________________________ Group member's name : ________________________________ Group member's ID : ________________________________ Date : ________________________________ Group member's declaration (Each group member, including the group leader, must individually fill up and submit this form, in the student's own handwriting. This form is to be inserted in the final submission.) Group member's name : ____________________________ Student ID : ____________________________ For the purpose of completing this assignment, I have performed the following tasks (please list): ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ I hereby declare that I have assessed the final submission and I take full responsibility should there be any inaccuracies, incompleteness, omissions, delays or non-submission. Group member's signature : ________________________________ Group member's name : ________________________________ Group member's ID : ________________________________ Date : ________________________________