INV2601 ASSIGNMENT 2
INV2601 ASSIGNMENT 2 S - The study-notes marketplace Call/ or SMS for assistance with Investment, Finance and other modules. Question 1 Answer: Reinvestment risk Explanation Lack of coupon payments on a zero coupon bond eliminates reinvestment risk. Reinvestment risk is a type of risk that a bondholder is exposed to when they receive cash inflows of which coupon payments are one. They might have to reinvest those funds at a relatively low yield if interest rates have gone down and thereby being exposed to reinvestment risk. Question 2 Answer: 9.95% Workings To calculate the YTC: On the financial calculator: FV = 1 413.96 PV = -1 547. 68 PMT = 80 (0.16 x 1000 = 160/2) N = 12 x 2 Comp I/Y? = 4. x 2 = 9.95% NB: Remember to capture the current price (PV) as a negative since this represent the money you would have to fork out if you are to hold this security. Question 3 Answer = 18.71% Workings 1 year Forward rate 2years from now = ( (1+
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- INV2601 - Investments: An Introduction
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inv2601 assignment 2
