ASC553: An investor has an asset portfolio consisting of 2 assets which are 6-year m% annual coupon bond and 4-year n% annual coupon bond, Assignment, UiTM, Malaysia

Question 1

Given below equation, ๐œ†๐œ†๐‘ก๐‘ก = 0.05 + 0.003๐‘ก๐‘ก โˆ’ 0.0002๐‘ก๐‘ก2 for 0 โ‰ค ๐‘ก๐‘ก โ‰ค 10 Construct a calculator for ๐‘›๐‘›-year spot rate and ๐‘š๐‘š-year forward rate which comes into existence at time ๐‘ก๐‘ก and covers from time ๐‘ก๐‘ก to time ๐‘ก๐‘ก + ๐‘š๐‘š. Your calculator must be able to incorporate below input a. ๐‘›๐‘› for spot rate. b. ๐‘š๐‘š and ๐‘ก๐‘ก for forward rate.

Question 2

An investor has an asset portfolio consisting of 2 assets which are 6-year m% annual coupon bond and 4-year n% annual coupon bond. Construct a calculator to calculate the portfolioโ€™s

a. Macaulay duration

b. Modified duration

c. Convexity

Question 3

Construct a calculator for arbitrage strategy for 2 year m% annual Coupon Bond yielding i% per annum. Incorporate an input into your calculator for: a. the bondโ€™s par value. b. The bondโ€™s coupon rate. c. The bondโ€™s yield rate (to calculate for the bondโ€™s price) d. Spot rates (can apply spot rates from question 1 or MGS from BNM website) Question 4 Your company has a 10-year lease agreement which has 10 annual lease payments. The first payment is RM100,000 and each payment thereafter was to be adjusted for inflation with annual 4% increases (compounded). Using the yield curve in Question 1, construct an absolute matching strategy using an annual coupon bond where the all have the same yield rate as per the zero coupon bond and all sell at par.

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