FIN630 Assignment 1...

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# [Solved] FIN630 Assignment 1 Solution & Discussion Fall 2019

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21/01/2020 11:08 pm

FIN630 Investment Analysis & Portfolio Management Assignment 1 Solution & Discussion Fall 2019

Due Date: January 21, 2020

After going through this assignment, the students should be able to:

• Calculate the percentage change in bond prices
• Evaluate the bond on the basis of bond volatility

# Question:

Bond prices fluctuate in the secondary market just like any other security. The main cause of changes in bond prices is changing interest rates. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. However, how much bonds change in price with interest rates depend on different factors. Following are the details of two bonds issued by ABC Company. The company is interested in identifying the impact of interest rates on bond prices so in future better decision could be taken in the best interest of the company and investors.

# Bond X:

A 5%, 15 years bond was issued in year 2019. Market rate for such type of bond is 4.5% semi- annually. Coupon payments are made semi-annually and par value is Rs.1, 000

# Bond Y:

A 5%, 15 years bond was issued in year 2019. Market rate for such type of bond is 5.5% semi- annually. Coupon payments are made semi-annually and par value is Rs.1, 000

# Requirement:

Calculate the bond volatility in each case. What is the impact of increase in interest rate on the bond volatility? You are required to provide complete calculations and working.

• Make sure to upload the solution file before the due date on
• Any submission made via email after the due date will not be

FORMATTING GUIDELINES:

• Use the font style “Times New Roman” or “Arial” and font size “12”.
• You may also compose your assignment in Open Office
• Use black and blue font colors

RULES FOR MARKING

• It is submitted after the due
• Provide complete working and reasoning in each case otherwise you will lose
• Irrelevant details are not
• The file you uploaded does not open or is
• It is in any format other than MS-Word or Open Office; g. Excel, PowerPoint, PDF etc.
• It is cheated or copied from other students, internet, books, journals

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