Financial Modelling

Running head: FINANCIAL MODELLING
Financial Modelling
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL MODELLING
Table of Contents
In Response to Question 1..........................................................................................................2
In Response to Question 2..........................................................................................................3
In Response to Question 3..........................................................................................................8
In Response to Question 4........................................................................................................12

2FINANCIAL MODELLING
In Response to Question 1
The Yield to Maturity for the bond was calculated on the annual payment of interest
and semi-annual payment of interest on a bond. The Yield to maturity for the bond was
calculated with the help of excel tool and relevant formula was applied for determining the
same. The Yield to Maturity or the YTM was around 2.998% for the annual interest payable
bond and was around 3.0178% for the semi-annual interest payable bond.
Annual Yield To Maturity Semi-Annual Yield To Maturity
Face Value 1000 Face Value 1000
Coupon Rate 2.65% Coupon Rate 2.65%
Current Price (P.V) 965.4 Current Price (P.V) 965.4
No of Years (N) 12 No of Years (N) 12
Annual Coupon Amt. 26.5 Semi Annual Coupon Amt. 13.25
Cumulative period pa. 1 Cumulative period pa. 2
No of Periods 12 No of Periods 24
Yield To Maturity 2.998% Yield To Maturity 1.498%
Annual YTM 2.998% Annual YTM 3.0178%
0 2 4 6 8 10 12 14
2.9700%
2.9800%
2.9900%
3.0000%
3.0100%
3.0200%
3.0300%
3.0400%
Relationship between YTM and Interest Rate
Interest Rate
YTM
The relationship between the yield to maturity and the frequency of interest rate can
be observed by the above-depicted graph where the return on the annual interest payable

3FINANCIAL MODELLING
bond is much higher due to the compounding effect. The return provided by the semi-annual
interest payable bond was much lower compared to the annual interest payable bond and the
investor should asses the same after determining the Yield to Maturity generated from each of
the same. Investors should select the bond with the highest yield to maturity so that the
investors can create wealth by investing in higher yield bonds. The Yield to maturity on the
other hand is greater than the coupon rate because of the bond trading at a discount rate
which alternatively makes the return generated from the bond higher than the interest rate of
the bond.
In Response to Question 2
The analysis of the PHLX Oil Sector Index and the NYSE Arca-Biotech Industry was
conducted in order to analyse out the risk and return analysis of the index. The data was
collected from Yahoo Finance and the trend period taken into consideration for the analysis
of the same was from the trend period 1998-2017. Analysis of a stock could be done by the
return generated by the asset class in respect of the risk undertaken by the investor.
Annual Return of Stocks
The return for the stocks were calculated on the basis of the performance of the stocks
in the trend period analysed for the company and the relevant return was calculated. The
average monthly return for the stocks were calculated by using the excel function average
return and simultaneously the risk of the stock were evaluated by using the standard deviation
formula in the same. The computed monthly return were then converted into annual return
the frequency of the return were plotted in the graph in order to carry out graphical analysis
on the same.