Mr Adriel Lumko is a risk-averse Financial Manager for FUN, a mid-sized company listed on the Botswana Stock Exchange. He was once caught off guard in an effort to invest excess cash that was to be used later in an expansion project. Three year ago, Mr Adriel Lumko bought 5 year bonds only to see interest rates rise wiping off a bigger chunk of the investment just when he was about to liquidate his investment to channel the money to the planned project. His superior, Ms Finesse Ndlovu was not pleased. Now Adriel is in a similar situation, the company has P10 million in excess that will be required in 3 years time and wants to invest this money in bonds. Instead of making his own analysis, Mr Adriel can only invest if a trusted and reputable analyst can make a recommendation. This decision is important for Mr Adriel because it has implications on his career. He approached you as an investment analyst schooled at Botho University to decide on the Treasury securities issued by the Botswana government that he can invest in. The securities have a par value of P1 000 Table 1: Extract information from the BSE electronic trading board Security Annual coupon % Clean price (P) Maturity (Years) BW2020-1 0 882.50 5 BW2020-2 11.65 - 5 BW202-3 5.5 - 3 In the meeting between you and Adriel, you agreed to base your decisions on the current Botswana yield curve given in Table 2. Table 2: The Botswana yield curve as of today at 0930 CAT Year 1 2 3 4 5 Spot rate (%) 1.54 1.61 1.61 1.63 1.65 Required 1. Compute the clean price of the remaining two bonds assuming they are held to maturity.
Read the case below and answer the questions that follow Mr Adriel Lumko is a risk-averse Financial Manager for FUN, a mid-sized company listed on the Botswana Stock Exchange. He was once caught off guard in an effort to invest excess cash that was to be used later in an expansion project. Three year ago, Mr Adriel Lumko bought 5 year bonds only to see interest rates rise wiping off a bigger chunk of the investment just when he was about to liquidate his investment to channel the money to the planned project. His superior, Ms Finesse Ndlovu was not pleased. Now Adriel is in a similar situation, the company has P10 million in excess that will be required in 3 years' time and wants to invest this money in bonds. Instead of making his own analysis, Mr Adriel can only invest if a trusted and reputable analyst can make a recommendation. This decision is important for Mr Adriel because it has implications on his career. He approached you as an investment analyst schooled at Botho University to decide on the Treasury securities issued by the Botswana government that he can invest in. The securities have a par value of P1 000 Table 1: Extract information from the BSE electronic trading board Security Annual coupon % Clean price (P) Maturity (Years) BW2020-10 882.50 5 BW2020-2 11.65 5 BW202-3 5.5 3 In the meeting between you and Adriel, you agreed to base your decisions on the current Botswana yield curve given in Table 2. Table 2: The Botswana yield curve as of today at 0930 CAT Year 2 3 14 15 Spot rate (%) 1.54|1.611.61 1.63|1.65 Required 1. Compute the clean price of the remaining two bonds assuming they are held to maturity. Read the case below and answer the questions that follow Mr Adriel Lumko is a risk-averse Financial Manager for FUN, a mid-sized company listed on the Botswana Stock Exchange. He was once caught off guard in an effort to invest excess cash that was to be used later in an expansion project. Three year ago, Mr Adriel Lumko bought 5 year bonds only to see interest rates rise wiping off a bigger chunk of the investment just when he was about to liquidate his investment to channel the money to the planned project. His superior, Ms Finesse Ndlovu was not pleased. Now Adriel is in a similar situation, the company has P10 million in excess that will be required in 3 years' time and wants to invest this money in bonds. Instead of making his own analysis, Mr Adriel can only invest if a trusted and reputable analyst can make a recommendation. This decision is important for Mr Adriel because it has implications on his career. He approached you as an investment analyst schooled at Botho University to decide on the Treasury securities issued by the Botswana government that he can invest in. The securities have a par value of P1 000 Table 1: Extract information from the BSE electronic trading board Security Annual coupon % Clean price (P) Maturity (Years) BW2020-10 882.50 5 BW2020-2 11.65 5 BW202-3 5.5 3 In the meeting between you and Adriel, you agreed to base your decisions on the current Botswana yield curve given in Table 2. Table 2: The Botswana yield curve as of today at 0930 CAT Year 2 3 14 15 Spot rate (%) 1.54|1.611.61 1.63|1.65 Required 1. Compute the clean price of the remaining two bonds assuming they are held to maturity
