Professional Documents
Culture Documents
Walt Disney
Walt Disney
Walt Disney
Assignment
Use the Approximate Duration and Convexity formulae we used in class, i.e. Excel or other
formulae should only be used to confirm your own work or for comparison purposes
Submit a single file .pdf file only that includes a signed declaration as part of your
submission.
The deadline is the deadline. Penalties apply for LATE submissions; consult book of
modules.
Assignment
Note: Students who are found to have breached regulations may be subject to severe penalties,
including being awarded a mark of zero for the entire module.
Print your name (as per your id card) and your student number
Declaration: I declare that the submitted answers are the result of my own work and that I
have not collaborated with a third party to gain a favourable outcome.
Signature:_________________________________
Assuming that each Sleeping Beauty bond has a $100 Face value,
1. Calculate the yield to first call of the Sleeping Beauty bond on the day it was first priced.
(5 marks)
2. Calculate the Duration of the Sleeping Beauty bond (you can ignore the impact of the call).
(5 marks)
3. Calculate the Convexity of the Sleeping Beauty bond (you can ignore the impact of the call).
(5 marks)
Assuming that the Coke bond has the same coupon rate and Face as the Disney bond,
4. Calculate the price of the Coke bond on the day it was first priced. (3 marks)
5. Calculate the simple yield of the Coke bond. (3 marks)
6. Calculate the current yield of the Coke bond. (2 marks)
7. Calculate the Duration of the Coke bond. (4 marks)
8. Calculate the Convexity of the Coke bond. (4 marks)
10. Explain why the US-T GOVT note you chose currently satisfies the delivery criteria for the
10 or 5-year T-Note futures contract. (2 marks)
11. State the coupon, maturity date and close price of the US-T GOVT note you chose and use
this information to calculate the yield to maturity as of the last coupon date (i.e. to avoid
complications relating to mid-period pricing). (4 marks)
12. Calculate the Duration as of the last coupon date of the US-T GOVT note you chose.
(4 marks)
13. Calculate the Convexity as of the last coupon date of the US-T GOVT note you chose.
(4 marks)
14. Daisy Duck, CFA is a portfolio manager with a fixed income portfolio currently valued at
$150.0m (with a par value of $145.0m) with an approximate duration of 12.696 and an
approximate convexity of 214.90. She is concerned about an uncertain interest rate
environment and wants to immunize her portfolio at its current value using a 10 or 5-year T-
Note futures contract. Assuming that the US-T GOVT note you chose is the cheapest to deliver
against the relevant contact, calculate the number of futures contracts Daisy needs to immunize
her portfolio. (9 marks)
Use your answers to the previous questions to answer the next two questions.
16. Suppose that Daisy Duck decides to immunize using bonds instead of futures. Assuming
that she can only choose a combination of the US-T GOVT Note you chose and at least one
from the Sleeping Beauty bond and the Coke bond, calculate the number of these securities she
should purchase today to immunize the portfolio. Explain your answer. (11 marks)
17. Jiminy Cricket, CFA is a portfolio manager with a $25.0m liability in 20 years’ time (20-
year zeros currently yield 7.0% but these are considered unsuitable for immunization
purposes). Assuming that he can only choose combinations of the Sleeping Beauty bond, Coke
bond and the US-T GOVT Note you chose, calculate the number of these securities he should
purchase today to immunize the future liability. Explain your answer. (20 marks)