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INV3702 Assignment 01 Semester 1 & 2 (Both) 2021
- Institution
- University Of South Africa (Unisa)
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INVESTMENTS: FIXED INCOME ANALYSISINV3702
ASSIGNMENT 01 SEMESTER 01& 02 2021
Work through lessons 1 to 4; then answer the following questions. Submit your assignment
via myUnisa.
Question 1
Consider a R1 million semi-annual pay floating-rate issue, where the rate is reset on 1
January and 1 July each year. The reference rate is 6-month LIBOR and the stated margin
+1.25%. If 6-month LIBOR is 6.5% on 1 July, what will the next semi-annual coupon on this
issue be?
[1] R38 750
[2] R65 000
[3] R77 500
Floating Rate Notes
Coupon = Reference rate + quoted margin
=6.5% +1.25%
= 7.75%
Semi annual coupon = [7.75% x R1 000 000]/2
=R38 750
, Question 2
Which of the following statements is most accurate regarding floating-rate issues that have
caps and floors?
[1] A floor is an advantage to the bondholder, while a cap is an advantage to the
issuer.
[2] A cap is an advantage to the bondholder, while a floor is an advantage to the
issuer.
[3] A floor is an advantage to the issuer and the bondholder, while a cap is a
disadvantage to the issuer and the bondholder.
A cap is a maximum on the coupon rate and is advantageous to the issuer. A floor is a minimum
on the coupon rate and is, therefore, advantageous to the bondholder.
Question 3
A bond manager considers buying a five-year semi-annual bond, with R1 000.00 par value,
12% coupon rate and is currently trading at R937.00. Which one of the following is closest
to the yield of this bond?
[1] 13.79%
[2] 13.95%
[3] 14.16%
FV= 1000
PMT = 120/2=60
N=5 x 2 = 10
PV= - 937
COMP I/YR = 6.8925 x 2 =13.79%
Question 4
A South African company issues bonds in the United States, denominated in US dollars.
Which of the following best describes this type of bond?
[1] Global bond
[2] Foreign bond
[3] Domestic bond
[4] Eurodollar bond
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