Question

QUESTION 4 [20 MARKS] (a) Illustrate on how the bond price to be affected by the required rate of inventors and the coupon rate. [4 marks] (b) If a government bond with a par value of RM1,000 which is expected to mature in three years has a promised coupon rate of 10% and interest rate (yield to maturity) 12%. (i) Calculate the market value of the government bond. [2 marks] (ii) Calculate the market value of the government bond if the interest rate rises from 12% to 15%. What is the effect on the bond price? [4 marks] (c) Differentiate between (i) initial margin and maintenance margin of the margin requirements in futures trading. [3 marks] (ii) strike price and market price. [3 marks] (d) Suppose a bank wishes to sell RM150 million in new deposits next month. Interest rates today on comparable deposits stand at 8 percent, but are expected to rise to 8.25 percent next month. Concerned about the possible rise in borrowing costs, the management wishes to use a futures contract. (i) Suggest the type of trading position that you recommend. [1 marks] (ii) If the bank does not cover the interest rate risk involved, find out how much in lost potential profits could the bank experience. -End of Assignment- [3 marks]

          QUESTION 4 [20 MARKS]
(a) Illustrate on how the bond price to be affected by the required rate of inventors and
the coupon rate.
[4 marks]
(b) If a government bond with a par value of RM1,000 which is expected to mature in
three years has a promised coupon rate of 10% and interest rate (yield to maturity)
12%.
(i) Calculate the market value of the government bond.
[2 marks]
(ii) Calculate the market value of the government bond if the interest rate rises
from 12% to 15%. What is the effect on the bond price?
[4 marks]
(c) Differentiate between
(i) initial margin and maintenance margin of the margin requirements in futures
trading.
[3 marks]
(ii) strike price and market price.
[3 marks]
(d) Suppose a bank wishes to sell RM150 million in new deposits next month. Interest
rates today on comparable deposits stand at 8 percent, but are expected to rise to
8.25 percent next month. Concerned about the possible rise in borrowing costs, the
management wishes to use a futures contract.
(i) Suggest the type of trading position that you recommend.
[1 marks]
(ii) If the bank does not cover the interest rate risk involved, find out how much in
lost potential profits could the bank experience.
-End of Assignment-
[3 marks]

QUESTION 4 [20 MARKS]
(a) Illustrate on how the bond price to be affected by the required rate of inventors and
the coupon rate.
[4 marks]
(b) If a government bond with a par value of RM1,000 which is expected to mature in
three years has a promised coupon rate of 10% and interest rate (yield to maturity)
12%.
(i) Calculate the market value of the government bond.
[2 marks]
(ii) Calculate the market value of the government bond if the interest rate rises
from 12% to 15%. What is the effect on the bond price?
[4 marks]
(c) Differentiate between
(i) initial margin and maintenance margin of the margin requirements in futures
trading.
[3 marks]
(ii) strike price and market price.
[3 marks]
(d) Suppose a bank wishes to sell RM150 million in new deposits next month. Interest
rates today on comparable deposits stand at 8 percent, but are expected to rise to
8.25 percent next month. Concerned about the possible rise in borrowing costs, the
management wishes to use a futures contract.
(i) Suggest the type of trading position that you recommend.
[1 marks]
(ii) If the bank does not cover the interest rate risk involved, find out how much in
lost potential profits could the bank experience.
-End of Assignment-
[3 marks]

Added by Alvaro W.

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