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Inv3702 Assignment 1 2022
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- University Of South Africa (Unisa)
Contains solutions for Inv3702 assignment 1 2022
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INV3702 ASSIGNMENT 01Work 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
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.
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%
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
, Question 5
The current price of a bond is 102.50. If interest rates change by 0.5%, the value of the bond
price changes by 2.50. What is the duration of the bond?
[1] 2.44
[2] 2.50
[3] 4.88
Question 6
An investor is concerned about interest rate risk. Which one of the following bonds (identical
in all other respects) has the least interest rate risk? The bond with …
[1] 5% yield and 10-year maturity.
[2] 5% yield and 20-year maturity.
[3] 6% yield and 10-year maturity.
Question 7
An investor holds R100 000 (par value) worth of TIPS, currently trading at par. The coupon
rate of 4% is paid semi-annually and the annual inflation rate 2.5%. What coupon payment
will the investor receive at the end of the first six months?
[1] R2 000
[2] R2 025
[3] R2 050
Question 8
Compared to a public offering, a private placement of debt securities likely has …
[1] less liquidity and a lower yield.
[2] less liquidity and a higher yield.
[3] more liquidity and a lower yield.
Question 9
An investor holds R100 000 (par value) worth of Treasury Inflation Protected Securities
(TIPS) that carry a 2.5% semi-annual pay coupon. If the annual inflation rate is 3%, what is
the inflation-adjusted principal value of the bond after six months?
[1] R101 500
[2] R102 500
[3] R103 000
2
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