ASC553: An investor has an asset portfolio consisting of 2 assets which are 6-year m% annual coupon bond and 4-year n% annual coupon bond, Assignment, UiTM, Malaysia

Question 1

Given below equation, πœ†πœ†π‘‘π‘‘ = 0.05 + 0.003𝑑𝑑 βˆ’ 0.0002𝑑𝑑2 for 0 ≀ 𝑑𝑑 ≀ 10 Construct a calculator for 𝑛𝑛-year spot rate and π‘šπ‘š-year forward rate which comes into existence at time 𝑑𝑑 and covers from time 𝑑𝑑 to time 𝑑𝑑 + π‘šπ‘š. Your calculator must be able to incorporate below input a. 𝑛𝑛 for spot rate. b. π‘šπ‘š and 𝑑𝑑 for forward rate.

Question 2

An investor has an asset portfolio consisting of 2 assets which are 6-year m% annual coupon bond and 4-year n% annual coupon bond. Construct a calculator to calculate the portfolio’s

a. Macaulay duration

b. Modified duration

c. Convexity

Question 3

Construct a calculator for arbitrage strategy for 2 year m% annual Coupon Bond yielding i% per annum. Incorporate an input into your calculator for: a. the bond’s par value. b. The bond’s coupon rate. c. The bond’s yield rate (to calculate for the bond’s price) d. Spot rates (can apply spot rates from question 1 or MGS from BNM website) Question 4 Your company has a 10-year lease agreement which has 10 annual lease payments. The first payment is RM100,000 and each payment thereafter was to be adjusted for inflation with annual 4% increases (compounded). Using the yield curve in Question 1, construct an absolute matching strategy using an annual coupon bond where the all have the same yield rate as per the zero coupon bond and all sell at par.

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