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ASSIGNMENT NO. 01

 

DUE DATE: 22ND MAY, 2018                                                                MARKS: 10

 

Learning Objective

 

The students are expected to develop an understanding of yield to maturity and coupon payments using the concepts of bonds pricing and to apply these concepts in financial decision making.

 

Learning Outcomes

 

After going through this activity, the students would be able to understand relationship between a bond’s price, coupon rate, yield to maturity and the application of these concepts.

 

Assignment

 

Question No. 1                                                                                                             (5 marks)

 

Complete the following table for a bond with 8% annual coupon rate and Rs. 1,000 face value. Also explain the relationship that you observe between yield to maturity, coupon rate and current price?

 

Years to Maturity

Yield to Maturity

Current Price

 

 

 

 

 

 

 

 

3

6%

 

 

 

 

3

8%

 

 

 

 

3

9%

 

 

 

 

6

5%

 

 

 

 

6

8%

 

 

 

 

9

9%

 

 

 

Question No. 2

 

(5 marks)

 

 

Which of the following 1 year bond (Face value = Rs. 100) has the highest yield to maturity and WHY?

 

  1. 7 % coupon bond selling for Rs. 80

 

  1. 8 % coupon bond selling for Rs. 100

 

  1. 9 % coupon bond selling for Rs. 110

 

Note:

 

It is compulsory to provide complete working.


 

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Years to Maturity Yield to Maturity Current Price

3 6% 1054
3 8% 1000
3 9% 975
6 5% 1152
6 8% 1000
9 9% 940


a. 7 % coupon bond selling for Rs. 80 has the highest yield to maturity.

7 % coupon bond selling for Rs. 80,
YTM is 33.75%

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