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Hashim Imran Wahla Investment

The document contains analysis of a bond investment including: 1. Calculating the yield to maturity of 7.84% and yield to call of 9.86% using a financial calculator and Excel. 2. Determining that if interest rates increase by 2%, the bond price would drop by 10.94% to $878.398. 3. Calculating the duration of the bond at 4.22 years and modified duration at 4.06 years, meaning a 1% increase in interest rates would decrease the bond price by approximately 4.07%.

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ھاشم عمران واھلہ
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47 views6 pages

Hashim Imran Wahla Investment

The document contains analysis of a bond investment including: 1. Calculating the yield to maturity of 7.84% and yield to call of 9.86% using a financial calculator and Excel. 2. Determining that if interest rates increase by 2%, the bond price would drop by 10.94% to $878.398. 3. Calculating the duration of the bond at 4.22 years and modified duration at 4.06 years, meaning a 1% increase in interest rates would decrease the bond price by approximately 4.07%.

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ھاشم عمران واھلہ
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You are on page 1/ 6

HASHIM IMRAN WAHLA

L1F17BBAM0217

INVESTMENT ANALYSIS

QUESTON 1

Using a financial calculator: PV= -1012.50, FV = 1000, PMT = 40, n= 24 as thebonds have 12 years until
maturity. The resulting periodic return is 3.919% or 7.84%annually.

Using a financial calculator: PV= -1012.50, FV = 1080, PMT = 40, n= 6 as the bondis callable in 3 years.
The resulting periodic return is 4.932% or 9.86% annually.

By using excel:

Yield to maturity =RATE(nper,pmt,pv,fv)*2

= 7.84%

Where,

nper = Number of period = 12*2 = 24

pmt = Coupon Payment = 1000*4% = 40.00

pv = Current Price = -1,012.50

fv = Future Value = 1,000.00

Yield to call =RATE(nper,pmt,pv,fv)*2

= 9.86%

Where,

nper = Number of period = 3*2 = 6

pmt = Coupon Payment = 1000*4% = 40.00

pv = Current Price = -1,012.50

fv = Future Value = 1000*108% = 1,080.00

QUESTION 2

If interest rate increases by 2% ; bond price drop by 2%*5.47 =10.94%

New bond price= 986.3*(1-10.94%) =878.398 $


QUESTION 3

Par value bond duration=[(1+ytm/2)/ytm][1-(1+ytm/2)^-2m]

=[(1+.08/2)/.08][1-(1+.08/2)^-2*5]

=13(.3244)

=4.22years

2.

The modified duration is calculated by dividing the value of the Macaulay duration by1 plus the yield to
maturity,divided by the no. Of Coupon periods per year.

Modified duration=4.22/(1+.08/2)

=4.06 years

Therefore if interest rates changes by 1%, increase or decrease, the duration of bond will decrease by
0.16 year. Since the modified duration is 4.06, if interest rates changes by 1% overnight, the price of
bond is expected to drop 4.07%.

QUESTION 4

Face value =1000

Maturity = 10

Coupon rate= 6%

Coupan payment= 60

Call protection period= 5

Callable bond and can be called to provide make to whole premium= 9%

0 1 2 3 4 5 6 7

-980 60 60 60 60 60 60 60

1000

Discount back at 9%

55.04 50.5 46.33 42.50 38.99 35.7732.82

547.04

Call price will be 848.96

Initial price =980/-

P(1-(1+r)^-n/r)
P= periodic payment=60

R= rate=9%

N= No. of periods=7

PV of future coupon paind till call = 301.98

PV today of bonmd call price= 678.02

Future value factor@9% for 7 years =1.828

Bond call price at end of 7 years 1239.45

QUESTION 5

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