, INV3702 Assignment 2 (COMPLETE ANSWERS)
Semester 1 2025 - DUE April 2025; 100% TRUSTED
Complete, trusted solutions and explanations.
Question 1
You observe the following sovereign bonds.
Determine whether Bond C is overvalued, undervalued or fairly valued.
All coupons arepaid annually. (3)
Step 1: Bond C's cash flows
Year 1: 6
Year 2: 106 (6 coupon + 100 principal)
Step 2: Discount each cash flow using spot rates
Price=6(1+0.02350)+106(1+0.02500)2
1 + 0.02500)^2
Price=(1+0.02350)6+(1+0.02500)2106
Calculating:
61.0235=5.864
= 5.8641.02356=5.864
106(1.025)2=1061.050625=100.930
Adding them up:
Theoretical Price=5.864+100.930=106.794
Price=5.864+100.930=106.794
Semester 1 2025 - DUE April 2025; 100% TRUSTED
Complete, trusted solutions and explanations.
Question 1
You observe the following sovereign bonds.
Determine whether Bond C is overvalued, undervalued or fairly valued.
All coupons arepaid annually. (3)
Step 1: Bond C's cash flows
Year 1: 6
Year 2: 106 (6 coupon + 100 principal)
Step 2: Discount each cash flow using spot rates
Price=6(1+0.02350)+106(1+0.02500)2
1 + 0.02500)^2
Price=(1+0.02350)6+(1+0.02500)2106
Calculating:
61.0235=5.864
= 5.8641.02356=5.864
106(1.025)2=1061.050625=100.930
Adding them up:
Theoretical Price=5.864+100.930=106.794
Price=5.864+100.930=106.794
