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Semester “Fall 2011”

“Money & Banking (MGT411)”

Assignment No. 02 Marks: 30

 

You have completed your graduation with specialization in Finance from a reputed institute of Pakistan. After completing your graduation you want to get job in a well reputed investment corporation. The company has given you an online test consisting of following financial data:

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? (5 Marks)

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? (5 Marks)

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? (5 Marks)

d) Suppose a 7% coupon bond with a face value of Rs.1,000 is currently selling at Rs.900. Find out yield to maturity of the bond? (5 Marks)

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? (5 Marks)

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? (5 Marks)

Note: You need to provide complete working along with formulae.

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after watching video lecture no. 1 to lecture no.27 and reading handouts as well as recommended text book).

2. Video lectures can be downloaded for free from vu's Channel – YouTube.

Schedule

Opening Date and Time December 23, 2011 At 12:00 A.M. (Mid-Night)

Due Date and Time December 29, 2011 At 11:59 P.M. (Mid-Night)

Views: 7327

Replies to This Discussion

Can anyone has any idea about the last question of the assignment which asked about "how much holding period return will be gained on the bond"..... I am confused with the wordings "will be gained".

Please anyone clarify it.

thanks a lot.

Q1. formula: 

PBP = F / (1+i)n

Q2. formula

P = C / i

Q3. formula

P = C/i[1-1/(1+i)^n]+F/(1+i)^n

Q4. formula

P=C/(1+i) + F/(1+i)

Q5. formula

Current yield = C/P

Q6. formula

Holding period return = C/P1 + (P2 - P1)/P1

Here+are+the+formulas+for+the+assignment+of+mgt411

See the attached file please

Attachments:

part a
Present value of six month treasury bill = 100/(1+0.07)^1/2
= 100/1.0344
= Rs.96.67




part b
Price of the consol = 8/(1+0.06)
= Rs.7.55






part c
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




Part e
Current yield = 6 / 98
= 6.12%
part f
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%
= 5.94%

part d ka solution nai mila so agar kisi ko maily to plz share kar deyna

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%
= 5.94% 

JAZAKALLAH....Bhai....

dear please take care because 126% mean bull shit hota hae

this is for your information only

thanks

yup right.. thanks :) but can you tell me what is the coupon payment amount in ques c and d???

i think in c it is 90 and in d it is 70.. confused

Tariq bhai Salam

I have found the formula of consol in Mishkin book P=C/i

and in question c the coupon rate is greater than yield rate so the price must be greater than face value page 42 handout.

in question f coupon value will always the percent of face value. Please again consider these

Thanks for all your efforts

bro jo accurate solution ha wo muje bata do muje plzzzzzzz 

my dear fallows

yar aur d part b solve kar do na kab karna ha??????

100% AGREED with Bahjat Saba... I have same confusions about c and d.. In c Coupon payment should be 90 and in d coupon payment should be 70 .. :/

the formula for YTM is price = coupon payment/(1+YTM) + face value / (1+YTM) Put the values given and calculate for the missing one.

part D solve krne k leye formula 

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