QUESTION 1 a) A RM1,000 bond, redeemable at RM1,050 on 1st October 2017, pays semiannual coupons at 10.5%. The bond is bought on 1st April 2015 with a rate of interest of 14% convertible monthly. Find the purchase price and construct the bond schedule. (6 marks) b) In January 2014, the government of a country issued an index-linked bond with a term of two years. Coupons were payable semiannually at a rate of 4% per year. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of six months. On January 2014, an investor purchase RM 10,000 par value redeemable at par and held it to redemption with the price of RM 9,800. The inflation index can be referred in the table below: Date July 2013 January 2014 July 2014 January 2015 July 2015 Inflation Index 110.5 112.1 115.7 119.1 123.2 i) Calculate the investor's cashflows from this investment and state the month when each cash flows occur. (4 marks) ii) Calculate the annual nominal yield rate of interest obtained by the investor using the method of linear interpolation. (4 marks) c) Derive Makeham's purchase-price formula for a bond redeemable at par, P = F(1+i)-n + [F - F(1 + i)-n] Where F = Par value r = coupon rate of a bond n = number of coupon payment periods from the date of calculation to maturity date i = Yield to maturity (6 marks) QUESTION 1 a) A RM1,000 bond, redeemable at RM1,050 on 1st October 2017, pays semiannual coupons at 10.5%. The bond is bought on 1st April 2015 with a rate of interest of 14% convertible monthly. Find the purchase price and construct the bond schedule. (6 marks) b) In January 2014, the government of a country issued an index-linked bond with a term of two years. Coupons were payable semiannually at a rate of 4% per year. Interest and capital payments were indexed by reference to the value of an inflation index with a time lag of six months. On January 2014, an investor purchase RM 10,000 par value redeemable at par and held it to redemption with the price of RM 9,800. The inflation index can be referred in the table below: Date July 2013 January 2014 July 2014 January 2015 July 2015 Inflation Index 110.5 112.1 115.7 119.1 123.2 i) Calculate the investor's cashflows from this investment and state the month when each cash flows occur. (4 marks) ii) Calculate the annual nominal yield rate of interest obtained by the investor using the method of linear interpolation. (4 marks) c) Derive Makeham's purchase-price formula for a bond redeemable at par, P = F(1+i)-n + [F - F(1 + i)-n] Where F = Par value r = coupon rate of a bond n = number of coupon payment periods from the date of calculation to maturity date i = Yield to maturity (6 marks)
