Chapter 6 Chapter 6
Chapter 6 Chapter 6
Chapter 6 Chapter 6
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11<br />
Q. No. 19 : Find the current market price of a bond having face value of<br />
Rs.1,00,000 redeemable after 6 year maturity with YTM at 16% payable annually and<br />
duration 4.3203 years. Given 1.16 6 = 2.4364. (May, 2007)<br />
Answer<br />
Let annual interest = c<br />
X W XW<br />
1 c x 0.862 0.862c<br />
2 c x 0.743 1.486c<br />
3 c x 0.641 1.923c<br />
4 c x 0.552 2.208c<br />
5 c x 0.476 2.380c<br />
6 c x 0.410 2.460c<br />
6 1,00,000x 0.410 2,46,000<br />
------------- --------------<br />
3.684c + 41000 246000 + 11.319c<br />
4.3203 = (246000 + 11.319c) / ( 3.684c + 41000)<br />
15.915985c + 177132.3 = 246000 + 11.319c<br />
4.596985c = 68867.7<br />
C = 14981 say 15000 Coupon rate = 15%<br />
Current price of debenture = 15000 x 3.685 + 41000 = 96275<br />
Q. No.20:<br />
Duration of a bond is 4.50 years. YTM = 8 % p.a. payable half yearly. Find<br />
the % change in its price if the YTM declines from 8 % to 7%.<br />
Answer<br />
% change in bond price = - [4.50/(1+.04)] x (-1) = +4.33%<br />
Q. No. 21: The investment portfolio of a bank is as follows:<br />
Government Bond Coupon rate Purchase rate Duration (Years)<br />
GOI 2009 11.68 106.50 3.50<br />
GOI 2013 7.55 105.00 6.50<br />
GOI 2018 7.38 105.00 7.50<br />
GOI 2025 8.35 110.00 8.75<br />
GOI 2035 7.95 101.00 13.00<br />
Face value of total investment is Rs.5 Crores in each Government bond.<br />
Calculate actual investment in portfolio.
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