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
University | Universiti Teknologi MARA (UiTM) |
Question 1
Given below equation, ๐๐๐ก๐ก = 0.05 + 0.003๐ก๐ก โ 0.0002๐ก๐ก2 for 0 โค ๐ก๐ก โค 10 Construct a calculator for ๐๐-year spot rate and ๐๐-year forward rate which comes into existence at time ๐ก๐ก and covers from time ๐ก๐ก to time ๐ก๐ก + ๐๐. Your calculator must be able to incorporate below input a. ๐๐ for spot rate. b. ๐๐ and ๐ก๐ก 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 portfolioโs
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 bondโs par value. b. The bondโs coupon rate. c. The bondโs yield rate (to calculate for the bondโs 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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