100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
INV3702 ASSIGNMENT 2 2024|-2025QUESTIONS AND CORRECT ANSWERS 100% PASS $13.59   Add to cart

Exam (elaborations)

INV3702 ASSIGNMENT 2 2024|-2025QUESTIONS AND CORRECT ANSWERS 100% PASS

 76 views  2 purchases
  • Course
  • INV3702
  • Institution
  • INV3702

INV3702 ASSIGNMENT 2 2024|QUESTIONS AND CORRECT ANSWERS 100% PASSQUESTION 1 Determine whether Bond E is overvalued, undervalued or fairly valued. All coupons are paid annually. The price of the 3-year coupon bond (as a percent of par) is: N = 3; I/YR = 2.711; PMT = 5; FV = 100; Compute PV =...

[Show more]

Preview 2 out of 8  pages

  • February 18, 2024
  • 8
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers
  • inv3702
  • 2025
  • INV3702
  • INV3702
avatar-seller
NURSINGTUTORNELSON
INV3702 ASSIGNMENT 2
2024|QUESTIONS AND
CORRECT ANSWERS
100% PASS
QUESTION 1
Determine whether
Bond E is overvalued,
undervalued or fairly
valued. All coupons
are paid annually.

, The price of the 3-year coupon bond (as a percent of par) is:

N = 3; I/YR = 2.711; PMT = 5; FV = 100;

Compute PV = –106.51



The no-arbitrage price of the 3-year coupon bond based on spot (zero-coupon) rates is:
5 5 105
+ + = 106.51
1.02350 (1.02500)2 1.027253




Therefore the 3-year coupon bond's price equals its no-arbitrage value, therefore the bond
is fairly valued.




QUESTION 2

Explain to Kgomotso why her method leads to an incorrect answer, and advise her on the
correct method to approach this question. No calculations are necessary.

Kgomotso’s method uses the yield-to-maturity as the input for I/YR.

Yield-to-maturity is not appropriate for arbitrage-free valuation when the yield curve is not
flat.

She should value each cash flow separately using the corresponding spot rate.
5
105
Full marks for the correct equation: +
1.035 1.03652

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller NURSINGTUTORNELSON. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $13.59. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

75632 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$13.59  2x  sold
  • (0)
  Add to cart