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Exam (elaborations)

INV3702 Assignment 2 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED

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INV3702 Assignment 2 (DETAILED ANSWERS) Semester 1 2025 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references ,..

Institution
University Of South Africa (Unisa)
Course
Fixed Income Analysis (INV3702)









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Barbara S. Petitt, Jerald E. Pinto, Wendy L. Pirie Fixed Income Analysis
  • 2015
  • 9781119029793
  • Unknown

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Institution
University of South Africa (Unisa)
Course
Fixed Income Analysis (INV3702)
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April 26, 2025
Number of pages
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Written in
2024/2025
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INV3702
Assignment 2 Semester 1 2025
Unique #:

Due Date: 2025

Detailed solutions, explanations, workings
and references.

+27 81 278 3372

, QUESTION 1

The price of the 2-year coupon bond (as a percent of par) is:

N = 2; I/YR = 2.496; PMT = 6; FV = 100;

Compute PV = 106.75



The no-arbitrage price of the 2-year coupon bond based on spot (zero-coupon)
rates is:




The 2-year coupon bond's price equals its no-arbitrage value, therefore the bond
is fairly valued.




QUESTION 2

Bond B has a current yield of 8.5%, which is higher than the average yield of
similar bonds (8.0%). This suggests that Bond B is underpriced compared to its
peers. If the bond's yield moves back in line with the peer group yield, its price will
rise. Therefore, buying Bond B now would allow the trader to benefit from the
price increase as the yield normalizes.




Varsity Cube 2025 +27 81 278 3372

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