I’m taking finance exam now it s one question I have one 1 more if you can help plz let me now I will upload the question
Section A
Answer Question 1 (compulsory question)
Question 1
- Estimate the following:
- the duration of a 8-year £100 par bond with a 6% annual coupon yielding 3% p.a.
- the convexity of the bond
- the percentage change in the bond price and also the new bond price if the yield increases to 5% p.a.
- the duration of the bond after the increase in the yield
(40 marks)
The percentage change in the bond price is estimated:
- Identify the factors that determine the duration of a bond. Use these to explain the change in duration estimated in (a) above.
(150 words maximum, 10 marks)
- Explain how the following bond management strategies can be used to immunise a portfolio against risk: (i) buy and hold (ii) laddering (iii) duration matching (iv) horizon matching. Identify the advantages and disadvantages of each.
(750 words maximum, 50 marks)
Continued..
Note. For the 2-rate growth model the intrinsic value may be estimated as:
For the H-model:
For the 3-stage model:
Question 3: Technical Analysis
Answer BOTH parts
- With the use of examples describe and explain how the following tools of technical analysis can be used to make stock buy/sell decisions:
- MACD
- RSI
(50 marks)
- Theory tells us that if the weak-form of the efficient markets hypothesis holds technical analysis should not be profitable. In the light of this discuss whether or not investors should use technical analysis when making their investment decisions
(50 Marks)
Continued..
Present Value Factors:
i.e.
where n is the number of periods and r is the interest (discount) rate as a decimal
Present Value of an Annuity:
Compound Sum factor:
Compound Sum of Annuity Factor:
Continued…
Table 1a: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
Continued…
Table 1b: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
Continued…
Table 2a: Present Value Factors (at R per cent) for £1 received at end of N periods
Continued…
Table 2b: Present Value Factors (at R per cent) for £1 received at end of N periods
Continued…
Table 3a: Compound Sum Annuity for £1 Compounded at R percent for N periods
Continued…
Table 3b: Compound Sum Annuity for £1 Compounded at R percent for N periods
Continued…
Table 4a: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N periods
Continued…
Table 4b: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N period
END.