12-30-2011, 03:29 AM
Assignment No. 2 (MGT411)
Semester Fall-2011
a) If a T-Bill having face value of Rs.100 along with 7% market interest rate and it is issued for only six months, what will be its present value?
Answer:
Present value of six month treasury bill = 100/(1+0.07)^1/2
= 100/1.0344
= Rs.96.67
b) If a consol is purchased promising annual payment of Rs.8 then what will be the price of the consol at 6% interest rate?
Answer:
Price of the consol = 8/(1+0.06)
= Rs.7.55
c) ABC Corporation has issued 9% coupon bond with face value of Rs. 1,000 in order to finance a new line of product. If the maturity period of the bond is 05 years then what will be price of the bond at 8% interest rate?
Answer:
Price of the bond = coupon payment/(1+i)^n + face value/(1+i)^n
= 9/(1+0.08)^5 + 1000/(1+0.08)^5
= 9/1.4693 +1000/1.4693
= 6.1254 + 680.5962
= Rs.686.72
e) Consider a 6% coupon bond with face value of Rs. 100 is currently selling at
Rs. 98. Find out the current yield of the bond?
Answer:
Current yield = 6 / 98
= 6.12%
f) Assume that you had purchased a 9%, 15 years coupon bond at price of Rs.950 having face value of Rs.1, 000. But after one year, you need money therefore you decide to sell this bond at Rs. 1,050 then how much holding period return will be gained on the bond?
Answer:
Holding period return = yearly coupon payment/ price paid + change in the price of bond/ price of the bond
= 9/100 + 1050-1000/1000
= 0.94% + 0.05
= 0.94% + 5%
Semester Fall-2011
a) If a T-Bill having face value of Rs.100 along with 7% market interest rate and it is issued for only six months, what will be its present value?
Answer:
Present value of six month treasury bill = 100/(1+0.07)^1/2
= 100/1.0344
= Rs.96.67
b) If a consol is purchased promising annual payment of Rs.8 then what will be the price of the consol at 6% interest rate?
Answer:
Price of the consol = 8/(1+0.06)
= Rs.7.55
c) ABC Corporation has issued 9% coupon bond with face value of Rs. 1,000 in order to finance a new line of product. If the maturity period of the bond is 05 years then what will be price of the bond at 8% interest rate?
Answer:
Price of the bond = coupon payment/(1+i)^n + face value/(1+i)^n
= 9/(1+0.08)^5 + 1000/(1+0.08)^5
= 9/1.4693 +1000/1.4693
= 6.1254 + 680.5962
= Rs.686.72
e) Consider a 6% coupon bond with face value of Rs. 100 is currently selling at
Rs. 98. Find out the current yield of the bond?
Answer:
Current yield = 6 / 98
= 6.12%
f) Assume that you had purchased a 9%, 15 years coupon bond at price of Rs.950 having face value of Rs.1, 000. But after one year, you need money therefore you decide to sell this bond at Rs. 1,050 then how much holding period return will be gained on the bond?
Answer:
Holding period return = yearly coupon payment/ price paid + change in the price of bond/ price of the bond
= 9/100 + 1050-1000/1000
= 0.94% + 0.05
= 0.94% + 5%