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INV3702 EXAM PACK 2022
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INV3702 EXAM PACK 2022
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INV3702 EXAM PACK 2022
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INV3702 EXAM PACK 2022
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INV3702EXAM PACK
, CONFIDENTIAL
Page 1 of 15 INV3702
May/June 2020
UNIVERSITY EXAMINATIONS
May/June 2020
INV3702
Investments: Fixed Income Analysis
40 marks
Duration: 1 hour 30 minutes
This paper consists of 15 pages.
Instructions:
Answer all 40 multiple-choice questions.
When the time is up, stop answering the questions and submit your answers. If you
submit late, you will be considered absent from the exam.
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5. Click on the Submit link in the Action column.
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, CONFIDENTIAL
Page 2 of 15 INV3702
May/June 2020
1. Calculate the yield-to-maturity of a zero-coupon bond which matures in 6 years, has a par value
of R10 000, and currently trades at R6 012. Assume semi-annual compounding.
1. 8.47%
2. 8.66%
3. 8.85%
4. 9.04%
2. Which one of the following statements about Treasury Inflation Protected Securities (TIPS) is
least accurate?
1. The coupon rate adjusts upward for inflation.
2. Coupon payments are always based on the par value.
3. Yields on TIPS are good estimates of their real returns.
4. Inflation adjustments to principal are made semi-annually.
3. A 30-year 7% bond with semi-annual coupon payments has a par value of R100 000. If it were
priced to yield 6.8%, this bond would be trading at approximately …
1. R102 532,50.
2. R102 545,55.
3. R102 558,50.
4. R102 571,55.
4. The price of a 5-year zero coupon bond with a current yield to maturity (YTM) of 8.4% is 66.27.
If the YTM increases to 8.9%, the price will decrease to 64.70. If the YTM decreases to 7.9%,
the price will increase to 67.88. The effective duration is closest to …
1. 2.40.
2. 3.18.
3. 4.80.
4. 5.38.
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, CONFIDENTIAL
Page 3 of 15 INV3702
May/June 2020
5. A 5-year floating-rate security was issued on 1 January 2015. The coupon rate formula was 1-
year LIBOR + 300 bps with a cap of 10%, a floor of 5% and annual reset. The 1-year LIBOR rate
on 1 January of each year of the security’s life is provided in the following table:
Year 1-year LIBOR
2015 3.5%
2016 4.0%
2017 3.0%
2018 2.0%
2019 1.5%
During 2019, the payments owed by the issuer were based on a coupon rate closest to …
1. 4.0%.
2. 4.5%.
3. 5.0%.
4. 6.5%.
6. A semi-annual-pay floating-rate security is most likely to trade at a discount to its par value
because the …
1. next reset date is in three months.
2. security was subjected to a credit downgrade.
3. security’s yield premium for credit risk decreases.
4. coupon rate formula includes a margin over LIBOR to compensate for the issue’s liquidity
risk.
7. A semi-annual-pay bond with a par value of R1 000 is callable in 5 years at R1 080. The bond
has an 8% coupon and 10 years to maturity. If the current yield to maturity is 9.6%, the yield to
call is closest to …
1. 9.29%.
2. 10.67%.
3. 11.97%.
4. 12.67%.
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