Question Two: a. Bank XYZ uses duration to inoculate its portfolio. In your opinion what are the factors the bank should consider which affect the change in the net worth of the bank when the interest rate changes. b. Consider the coefficients of Altman's Z-score. Can you tell by the size of the coefficients which ratio appears most important in assessing the creditworthiness of a loan applicant? Explain. c. Consider Five-year Bond: Par value = $1000, Coupon rate = 15%, annual payments and interest rate is 9%. (i) What is the duration of the bond? (ii) If interest rates rise to 10 per cent within the next year and your investment horizon is four years from today, you will still earn a 9 per cent yield on your investment. What is the Total future value of your investment after four years? (3+3+4= 10 marks) Question Two: a. Bank XYZ uses duration to inoculate its portfolio. In your opinion what are the factors the bank should consider which affect the change in the net worth of the bank when the interest rate changes. b. Consider the coefficients of Altman's Z-score. Can you tell by the size of the coefficients which ratio appears most important in assessing the creditworthiness of a loan applicant? Explain. c. Consider Five-year Bond: Par value = $1000, Coupon rate = 15%, annual payments and interest rate is 9%. (i) What is the duration of the bond? (ii) If interest rates rise to 10 per cent within the next year and your investment horizon is four years from today, you will still earn a 9 per cent yield on your investment. What is the Total future value of your investment after four years? (3+3+4= 10 marks)