FIL 242 - Investments
 
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Solutions to problems 3

Topic 10 – Bond valuation

  1. Current yield = annual interest /price = 150/1200=12.5%
  2. 2400

    1. 9.91%
    2. 9.09%
    3. 8% so A is the highest 

    1. 1072.48
    2. 806.92
    3. 1421.70
  5. One = 847.53 and the other=1469.37. Note that before doing any calculations you could have found the answer here since one must sell at a discount and the other must sell at a premium
  6. 1081.44
  7. 795.59
  8. 9.44%
  9. 3.22%
  10. 9.97%

    1. 8.67%
    2. 9.71%
    3. 20.99%

    1. 8.89%
    2. 9.09%
  13. Maturity  Price  YTM
     20 years
    		  400 4.63%
     15 years
    		  308.32 8%
    12 years
    		 310.07  10%

    1. Current =8.0%, ytm=7.67%, ytc=5.03%. Current yield does not account for capital gains. And since the coupon is much higher that the yield, it is likely this bond will be called so YTC is a better measure.
    2. Current =13.33%, ytm=13.57%, ytc=18.40%. Since bond is unlikely to be called, YTM is best.

    1. price=1124.72 so YTC=6.74%
    2. 5.95%
    3. 6.06%  

    1. 8.89%, 6.67% at the end,
    2. (income+CG)/price=(80+300)/900=42.22%

    1. 1000, then 1090.25
    2. 18.62%
  18. 8.5/1.04=8.17
  19. +13.64%

    1. current price = 1258.70, macaulay = 8.54 years so modified duration = 8.17 years
    2. -8.17% or -$102.84 so new estimated price is 1155.86
    3. Actual price using new yield is 1161.93. Note that using duration is only an estimate that works well for tiny changes in the interest rate.
  21. E, A, D, B, C
  22.     
    1. Current yield = 8.97%
    2. YTM = 8.74%
    3. YTC = 8.41%
    4. Highest Yield = YTM, Lowest Yield = YTC

Topic 11 – Mutual funds

  1. (22.10-22.50+1.06)/22.50=+2.93%
  2. 2006: (42-54.44+2.15+1.56)/54.44=-16.04%, 2007: +50.68%, 2008: 1.71%

    1. 30.91%
    2. 26.98%

    1. (11.90-11+0.50+0.90)/11=20.91%
    2. P(-1)=11*(1-.19)=8.91, P(0)=12.50, HPR=56.00%. You bought at a discount (below NAV) and sold at a premium (above NAV), so even if NAV was fixed, this helped.
    3.  -3.71%, unlike b., the discount moved against you
  5. 12.70
  6. 3%

    1. ClassA=1219.48, Class Z = 1251.36
    2. Class A=24,334.42 and Class Z=21,230.54 
  8. Please see the work below for detailed calculations
               1.   Class Ahlgrim = 1,000 x (1-0.0825) x (1+0.12 - 0.0034 - 0.0055 - 0.0025)^3
                                           = 1,000 x (0.9175) x (1.3624)
                                           = $1,250.06

                     Class Jagmin = 1,000 x (1+0.12 - 0.013 - 0.007 - 0.0035)^3 x [1-.03]
                                           = 1,000 x (1.31834) x (1 - 0.3)
                                           = 1,000 x (1.31834) x (0.97)
                                           = $1,278.79

                2.   Class Ahlgrim = 1,000 x (1-0.0825) x (1+0.12 - 0.0034 - 0.0055 - 0.0025)^20                                          
                                            = 1,000 x (0.9175) x (7.86136)
                                            = $7,212.80

                      Class Jagmin = 1,000 x (1+0.12 - 0.013 - 0.007 - 0.0035)^20
                                           = 1,000 x (6.3121)
                                           = $6,312.08

               3.    Short-term = Class Jagmin
                      Long-term = Class Ahlgrim

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