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INV2601 ASSSIGNMENT 4 2021
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WELL EXPLAINED SOLUTIONS, REFERENCES INCLUDED AND WORKINGS FOR INV2601 ASSIGNMENT 4 OF 2021. QUALITY PASS GUARANTEED AND THE DOCUMENT IS USEFUL FOR REVISION AND REFERENCE PURPOSES
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INV2601 ASSIGNMENT 4 2021, Question 1 of 30
1.0 Points
Solution = 9.53
A 20 year, 10% semi-annual coupon bond (R1 000 par value) is priced at a yield to maturity
of 8%. The yield to maturity changes by 1%.
Workings
V- V0 V+
FV 1000 1000 1000
PMT 50 50 [(1000×0.10)÷2] 90
I/YR 3.5 [(8-1)÷2] 4 (8÷2) 4.5 [(8+1)÷2]
N 40 40 (20×2) 40
PV R1 320.3261 R1 197.9277 R1 092.0079
(V−)−V+ (1 320.3261−1 092.0079)
Duration = (2V0(change in yield in decimal)) = = 9.53
2 x 1 197.9277 x 0.01
Question 2 of 30
1.0 Points
Solution = 9.53% and -9.53%
A 20 year, 10% semi-annual coupon bond (R1 000 par value) is priced at a yield to maturity of
8%. Calculate the duration effect when the yield to maturity decreases and increases by 1%
respectively.
Workings
Duration effect = -Duration (change in yield)
When decreases
Duration effect = -9.53(-1) = 9.53%
When yield increases
Duration effect = -9.53(1) = -9.53%
Question 3 of 30
1.0 Points
Solution = 0.69%
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