HW#1 Suggested Solution 2019 Spring.pdf - THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS FINA3323 – FIXED INCOME SECURITIES SECOND

# HW#1 Suggested Solution 2019 Spring.pdf - THE UNIVERSITY OF...

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T HE U NIVERSITY O F H ONG K ONG F ACULTY O F B USINESS A ND E CONOMICS F INA 3323 F IXED I NCOME S ECURITIES S ECOND S EMESTER , 2018-2019 Suggested Solution to HW#1 Question 1 (a) List of currently outstanding Government Bonds in Hong Kong (Position as of January, 2019) : (b) The most recent bond issue (Government Bond Programme) :

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FINA3323 - HW#1 Suggested Solution 2 Question 2 At the end of year four, the portfolio manager’s amount: P n = P 0 (1 + r ) n . P 4 = \$500,000(1.023) 4 = \$500,000(1.0952) = \$547,611.4739 . In three more years at the end of year seven, the manager amount: P 7 = P 4 (1+ r ) 3 . P 7 = \$547,611.4739(1.037) 3 = \$547,611.4739(1.0952) = \$610,673.126. At the end of year seven, the portfolio manager’s amount, which adjusts for semiannual compounding is: P n = P 0 (1 + r /2) 2( n ) . P 7 = \$500,000(1 + 0.03/2) 2(7) = \$500,000(1.015) 14 = \$500,000(1.2318) = \$615,877.8653 . Thus, this investment alternative is not more attractive. It is less by the amount of \$615,877.8633 – \$610,673.126 = - \$5,204.7393 Question 3 (i) Accrued Interest: j / k = 126/180 = 0.7 C /2 = (\$1,000 × 5%/2) = \$2.5 Accrued Interest = 0.7 × \$2.5 = \$1.75 (ii) Dirty Price: = ቈ \$2.5 1.0375 ଴.ଷ + \$2.5 1.0375 ଵ.ଷ + \$2.5 1.0375 ଶ.ଷ + \$2.5 1.0375 ଷ.ଷ + \$2.5 1.0375 ସ.ଷ + \$2.5 1.0375 ହ.ଷ + \$102.5 1.0375 ଺.ଷ = 94.8404 (iii) Price of a bond without accrued interest is called the clean price: \$94.84 - \$1.75 = \$93.09 Question 4 (a) We have a 10-year 3% coupon bond with a par value of \$1,000 and a required yield of 15%.
• Fall '18
• Dr.HuiyanQIU
• Portfolio Manager, outstanding Government Bonds

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