Assignment_5 - FIN254 FIN254 Assignment#5(Based on Chapter...

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FIN254 FIN254 Assignment#5 (Based on Chapter 7) Assignment#5 (Based on Chapter 7) 1. If a T-bill is currently paying 7.5% interest rate and average increase in price level (inflation) is 3.5%, what is the approximate real rate of interest? The exact real rate? 2. Suppose the real rate is 4.5% and the average increase in price level (inflation) is 5.5%. What rate would you expect to see in a T-Bill? 3. An investment offers 13% total return over the coming year. Mr. Anondo thinks the total real return on this investment will be only 8%. What does Mr. Anondo believe the inflation rate will be over the next year? 4. Suppose your SHANCHAY PATRA paid a 13.5% total return last year. If the inflation rate was 4.8%, what was your real return? 5. Bond X is a premium bond making annual payments. The bond pays 10% coupon, has a discount rate (YTM) of 7% and also has 15 years to maturity. Bond Y is a discount bond making annual payments. This bond has 7% coupon, has a YTM of 10% and also has 15 years to maturity. If interest rates remain unchanged what do you think the price of these
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Unformatted text preview: bonds would be 2 years from now? In 5 Years? In 7 years? In 10 years? In 13 years? Illustrate your answers by graphing bond prices versus time to maturity. 6. Banglalink has 7.6% coupon bonds on the market with 10 years to maturity. The bonds make semiannual payments and currently sell for 92.5% of par. What is current yield on the bonds? The YTM? The effective annual yield? 7. North South University wants to issue new 15-year- bonds for some much needed expansion projects. The company currently has 8% coupon bonds in the market that sell for TK 1050, make semiannual payments and mature in 15 years. What coupon rate should the university set on its new bonds if it wants to sell them at par? 8. Suppose, you purchase a bond with an invoice price of Tk 1100. The bond has a coupon rate of 9.2% and there are four months to the next semiannual coupon date. What is the clean price of the bond? Due Date: 13 Due Date: 13 th th November, 2011 (Sunday) November, 2011 (Sunday)...
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