Investment Analysis: Yield Curve, Interest Rate Risk, and Efficient Market

Investment analysis

TABLE OF CONTENTS
SECTION A...............................................................................................................................3
Question 1..............................................................................................................................3
SECTION B...............................................................................................................................3
Question 3 Technical Analysis...............................................................................................3
REFERENCES...........................................................................................................................5

SECTION A
Question 1
Question: 1
a)
BOND –A
Time cash
flows
P.V.
facto
r
PVC
F
Weight T * Weight T *
(t+1)*weight*(1/1+R)^2
1 10 0.909 9.09 0.09090
9
0.09090909
1
0.22
2 10 0.826 8.26 0.08260
8
0.16521652
2
0.599735974
3 10 0.751 7.51 0.07510
8
0.22532253
2
1.090561056
4 110 0.683 75.13 0.75137
5
3.00550055 18.18327833
Bond Price 99.99
Duration 3.48694869
5
modified
duration
3.41857715
2
Convexity 20.09357536
BOND – B
Time cash
flows
P.V.
facto
r
PVCF Weight T *
Weight
T *
(t+1)*weight*(1/1+R
)^2
1 9 0.91
7
8.253 0.0825
29
0.0825291
75
0.196105825
2 9 0.84
2
7.578 0.0757
79
0.1515584
84
0.540199906
3 9 0.77
2
6.948 0.0694
79
0.2084379
16
0.99058035
4 9 0.70
8
6.372 0.0637
19
0.2548774
51
1.514099499
5 109 0.65 70.85 0.7084
93
3.5424645
75
25.25281297
Bond Price 100.0
01
Duration 4.2398676
01
modified duration 4.1567329
42
Convexity 28.49379855
Yield 10%