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MGT411 - Money & Banking

Graded Discussion Board

Dec 5-10, 2013

Total Marks 30
 


 “RETURN ON BONDS & SOURCES OF BOND RISK”

 

LEARNING OBJECTIVES:

 

Money & Banking students will be enabled to understand:

 

  • What are the different sources of bond risk and their impact on bonds’ value?

 

  • The behavior and strategy of an investor (bondholder), to manage & deal with the risk of a bond according his needs and market conditions.

 

Case:

Luxurious life, who does not wish to live. Nowadays, a good education is essential for such a wishful life. Getting quality education has become a dream that can hardly come true for lower middle class which strives tooth and nail. They put their lives and even their hard earned savings at risk to secure better future for themselves and their coming generations.

Mr. Amjad recently completed his graduation from a local university and now plans to pursue higher studies abroad, Australia. Getting admission and   study visa may take thirteen to fifteen months. He has sufficient money that can only help him secure admission, get visa and travel to desired location but cannot pay for accommodation, food and other expenses; therefore requires more money. An idea knocked him to invest the money in hand in some corporate bonds that may earn him high profits(which he actually needs); would sell these bonds without any loss upon the confirmation of admission to pay dues (admission charges, semester charges, travel, boarding and messing) and start working for making his dreams come true.

Requirement:

1.      Suppose Mr. Amjad invests money in 12% corporate bonds, after a month, government changes its policy regarding interest rate. How can Mr. Amjad incur loss due to such change?                                                   

2.      Does the above change (in part 1) link with the liquidity of a bond? Support your answer with logical reasoning.                                          

3.      After two months, a banker approaches Mr. Amjad and attempts to convince him to move his money from bonds and invest in bank’s “Mahana Certificates (MCs)”, he claims that MCs are 100% secure and fully insured by the government. How would Mr. Amjad respond?                          

    

Note: Complete your comment within 250 words

Important Instructions:

 

1.   Your discussion must be based on logical facts.

2.   The discussion board will remain open for 4 working days.

3.   Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.

4.   Obnoxious or ignoble answer should be strictly avoided.

5.   Questions / queries related to the content of the discussion board, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of discussion board is over.

v  For detailed instructions please see the discussion board announcement

 

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Replies to This Discussion

koi solution to post ker dey ?

there is effect he will lost his profit because he is using zero coupon bond no periodic payments face value+interest will make is profit if gov change interest rate then he will lost his profit 

he will invest in mahana certificate because   it  Make periodic interest payments and repay the principal 

Koi to help kr de its very confusing

plzzz share solution ....... !!!!

kuch sumajh nahi a rahi koi to solution upload kar do

mujhe nai ata ye gdb koi to bolay kuch idea hi discuss kar lo mehurbani kar k 

pleaseeeeeeeee dicuss some idea here .Tariq bhai please kuch discuss karein.thanks.... confusing GDB

uffff.......30 marks ki GDB helppppppppp baro
uffff.......30 marks ki GDB helppppppppp baro

1st k answer i think ya ho ga k "zero coupon bond " use kary gay....any one agree????

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