Question
Question 1 The information provided is related to question 1 A-D. You have been provided with information on two bonds in the table below. Assume
Question 1 The information provided is related to question 1 A-D. You have been provided with information on two bonds in the table below. Assume a face value of all bonds to be R1 000
Bond | Years to Maturity | Coupon | YTM | Reinvestment Rate |
A | 9 | 11% | 12% | 7% |
B | 17 | 8% | 11% | 7% |
A) Calculate the price of each bond assuming that coupons are paid annually. (6 marks) B) Calculate the Macaulay duration of each bond. (15 marks) C) Determine the impact on the bond price (according to modified duration) (in % terms) given a 1.5% increase in interest rates. (4 marks) D) Assume that you intend on selling both bonds when Bond A matures (in 9 years time). Applying a re-investment rate of 8%, calculate the future value of the portfolio in 9 years time years as well as the annualised return of the portfolio assuming you hold one of each bond in your portfolio. (25 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started