A government bond with a par value of R1000, maturing in 5 years, offers an annual coupon of 9.5%, and a yield to maturity of 11.5%. PART A: What is the current value of the bond? Give your answer in Rands (R) correct to TWO decimal places. R........ PART B: Use the table approach to determine the value on the right-hand side of the convexity calculation. That is, what is the sum of the discounted cash flows, multiplied by (t2 + t)? Provide your answer correct to TWO decimal places. Answer.......... PART C: Given your results above, what is the convexity of this bond? Give your answer, correct to TWO decimal places. Answer....... PART D: If this bond has a modified duration of 4 and yields increase by 200 basis points, the correction for convexity ((∆P/P) will forecast that the bond price will decrease by what percentage? Provide your answer, in percent (%), correct to TWO decimal places.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
A government bond with a par value of R1000, maturing in 5 years, offers an annual coupon of 9.5%, and a yield to maturity of 11.5%.
PART A: What is the current value of the bond? Give your answer in Rands (R) correct to TWO decimal places.
R........
PART B: Use the table approach to determine the value on the right-hand side of the convexity calculation. That is, what is the sum of the discounted cash flows, multiplied by (t2 + t)?
Provide your answer correct to TWO decimal places.
Answer..........
PART C: Given your results above, what is the convexity of this bond?
Give your answer, correct to TWO decimal places.
Answer.......
PART D: If this bond has a modified duration of 4 and yields increase by 200 basis points, the correction for convexity ((∆P/P) will
Provide your answer, in percent (%), correct to TWO decimal places.
Answer% ..........
You do not have to indicate the negative with `–` or `() `, simply provide your answer in percent (%
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