DO NOT ANSWER IN EXCEL PLEASE, THIS IS PAPER TEST

Q uestion 1. Answer all partS . Consider the following three bonds. Bond N Bond S 1,000 5% 3 years A% Bond T 1,000 Zero 6 years 1,000 Par Value Coupon Time to Matunt)y Required Yield 4 years (a) Calculate and interpret the present values of each bond [10 marks] (b) Calculate the Macaulay duration and Modified duration for each bond. Interpret your results [11 marks] (c) If required yield falls from 4% to 3.1%, (i) use duration to calculate the price changes for each bond, (ll) explain Why these calculated pnce changes might be imprecise, and (lIl) discuss the action that a bond portfolio manager should take in this situation. [12 marks] l. Cnically discuss the main pinciples of managing a bond portfollo using immunisation and cash matching approaches [17 marks] Q uestion 1. Answer all partS . Consider the following three bonds. Bond N Bond S 1,000 5% 3 years A% Bond T 1,000 Zero 6 years 1,000 Par Value Coupon Time to Matunt)y Required Yield 4 years (a) Calculate and interpret the present values of each bond [10 marks] (b) Calculate the Macaulay duration and Modified duration for each bond. Interpret your results [11 marks] (c) If required yield falls from 4% to 3.1%, (i) use duration to calculate the price changes for each bond, (ll) explain Why these calculated pnce changes might be imprecise, and (lIl) discuss the action that a bond portfolio manager should take in this situation. [12 marks] l. Cnically discuss the main pinciples of managing a bond portfollo using immunisation and cash matching approaches [17 marks]