Question

BCOMH BCHIMA (Compatibility Mode] - MICROSOI WORD References Mailings Review View Controlled Disclosure Secret Confidential Public Top Secret [20] QUESTION FOUR 4.1 Assume the following information of a R1 000 par value bond: Coupon rate 8% with semi-annual payments Time to maturity 10 years Discount rate 10% 4.1.1 Calculate the value of the bond (4) 412 What is the value of the bond if the discount rate fell to 6%? (4) 4.1.3 What can be concluded between price and yield from the calculations in questions (4.1.1) and (412) (2) 42 Ben Graham's portfolio has the following data for a particular sample period Data for Ben's portfolio for a particular sample period Portfolio Market T-Bill (Risk-free) Average return 35% 28% 6% Beta 0 1120 42% 1.00 30% Standard deviation 0 Calculate Sharpe, Jensen (alpha) and Treynor measures of performance for Ben's portfolio and the market and indicate the measures by which Ben's portfolio outperformed the market. (10)

Subject Investment

Answer 1

(* ] Price of bond = {Coupons Par Value [terms] where n= number of year & coupas payment per year Yield to maturity [YTM number of payments per year oma Hanu, 1000+40 ů Price of bond band = f f 40 (1+0.05) ([+0.05) 20 (1+0.05) &75.38 in New Price of 40 1000 + 40 40 Te0.03 2 bond (t003)² (129-03) = 1,148.77

Semiannual Interest payment = 1000*8**0.5 => 40,

Interest rate = 10%/2 = 0.05 and 6%/2 = 0.03

iii) As we can see when the yield on bonds went down from 10% to 6%, price of bond increased from 875.38 to 1,148.77. Therefore there is inverse relation between price of bond and its yield.

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