Question: This section consists of ONE (1) COMPULSORY question. 01. Suppose you observe the following effective par coupon yield for zero coupon bond as below: 0.030

This section consists of ONE (1) COMPULSORY question. 01. Suppose you

This section consists of ONE (1) COMPULSORY question. 01. Suppose you observe the following effective par coupon yield for zero coupon bond as below: 0.030 (1-year), 0.03491(2-year). 0.03974 (3-year). 0.04445 (4-year) and 0.04903 (5-year). For each maturity year, Estimate the opportunity cost for investment for each maturity year (15 marks) Calculate continuous compounded bond yield, for each maturity year. (5 marks) (b) Explain the risk management process. (14 marks Explain the THREE (3) issues that an institution (say, a bank) will have considered when assessing credit risk from a single counterparty (6 marks) [Total: 40 marks) This section consists of ONE (1) COMPULSORY question. 01. Suppose you observe the following effective par coupon yield for zero coupon bond as below: 0.030 (1-year), 0.03491(2-year). 0.03974 (3-year). 0.04445 (4-year) and 0.04903 (5-year). For each maturity year, Estimate the opportunity cost for investment for each maturity year (15 marks) Calculate continuous compounded bond yield, for each maturity year. (5 marks) (b) Explain the risk management process. (14 marks Explain the THREE (3) issues that an institution (say, a bank) will have considered when assessing credit risk from a single counterparty (6 marks) [Total: 40 marks)

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