QUESTION 4 [20 MARKS] (a) Illustrate on how the bond price to be affected by the required rate of inventors and the coupon rate. [4 marks) (b) If a government bond with a par value of RM1,000 which is expected to mature in three years has a promised coupon rate of 10% and interest rate (yield to maturity) 12%. (1) Calculate the market value of the goverment bond. [2 marks] (ii) Calculate the market value of the government bond if the interest rate rises from 12% to 15%. What is the effect on the bond price? [4 marks) (c) Differentiate between ) initial margin and maintenance margin of the margin requirements in futures trading [3 marks) (ii) strike price and market price. [3 marks] (d) Suppose a bank wishes to sell RM150 million in new deposits next month. Interest rates today on comparable deposits stand at 8 percent, but are expected to rise to 8.25 percent next month. Concerned about the possible rise in borrowing costs, the management wishes to use a futures contract. (1) Suggest the type of trading position that you recommend. [1 marks) (ii) If the bank does not cover the interest rate risk involved, find out how much in lost potential profits could the bank experience. [3 marks] End of Assignment