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You are an internal auditor in a fund management company. You have been asked to verify the valuation of two bonds picked from a funds portfolio as of close of business on 31 December 2018. Bond A Face value: $3,000,000 Coupon: Repayment: Bullet at maturityd Maturity: Yield: 2.50% pa. payable semiannually. 31 December 2023 The yield required by investors for a 5-year bond rated A+ by Standard & Poors and A1 by Moodys is 2.25% (semi-annual compounding) Bond B ce value: $2,000,0004 Coupon: Maturity: Yield: Zero 31 December 2028 The yield required by investors for a 10-year bond rated AA- by Standard & Poors and Aa3 by Moodys is 2.75% (continuous compounding)d 1. What is the value of Bond A on 31 December 2018? What is the Duration of the Bond on 31 December 2018? 2. What is the value of Bond B on 31 December 2018?

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Question l Face amount Coupon coupon amounts 3000000*25%-75000 3,000,00000 2)% sc:riil annually Repayment 31-Dec-23 time 5 years 5*2 10 intervals % semi annually Yield Bond value Present value of face value Present value of Coupons Bond value-75000 PVAF(22596,10) + 3000000 PVF(225%,10) -66496623+240153040 $ 3,066,49663Question 1 ( part b) Duration of bond Period Cash flow Period * cash 175000 2 75000 3 75000 75000 5 75000 75000 7 75000 75000 75000 10 3075000 75000 097799511 150000 095647444 225000 093542732 300000 091484335 375000 089471232 450000 087502427 525000 085576946 600000 083693835 675000 0 81852161 30750000 080051013 Pvf @ 225% Present value of cash flow 73,34963 143,47117 210,471 15 274,45300 335,51712 393,76092 449,27897 502,16301 552,50209 24,615,68656 27,550,65362 4 9 total Duration total weighted amount/ Price of bond Duration 2755065362/3,066,49663 Duration 8.98 yearsQuestion 2 Face amount <oi*i Repayment time Vicelk 2,000,00000 zero 31-Dec-28 10 years 275% continuous compounding Bond value Amount *(e (rt)) Bond value-2000000* (e*(0275*10)) -2000000131653067487 2,633,06135

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