Tutorial+17 - BUS3026W Finance II 2009 - Tutorial 17 Due:...

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BUS3026W Finance II 2009 - Tutorial 17 Due: Monday 28 September ______________________________________________________________ Question Two a) We first need to calculate the par value of our bond by decomposing it into equivalent zero-coupon bonds: 0522 . 0 5 . 0 0517 . 0 04 . 1 04 . 0 90 e x e x x + = 97.31 = 1.1094x x = 87.712 (3) Therefore the par value is R87.712m and the coupon is R3.508m semi-annually. Therefore our zero-coupon cash flows are as follows: 6-Month 12-Month Cash Flows R3.508m R91.22m MtM R3.419m R86.581m (4) As a check, the MtM value of our zero coupons adds up to R90m. b) Stress to the students that they must take note of the information given. If they are given mean price changes and standard deviations, they can simply do their VaR calculations for mean and standard deviation as normal. Where they are given yield changes, however, they need work towards price changes using modified duration and the yield means and standard deviations they’ve been given.
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Tutorial+17 - BUS3026W Finance II 2009 - Tutorial 17 Due:...

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