|Faculty of Business and Law|
|Answer: Question 1 (Section A) and EITHER Question 2 OR Question 3 (Section B)|
|All questions are worth equal marks.|
|The total number of questions in this paper is THREE|
|Total marks for the paper are 200|
|Non programmable calculates may be used. Financial calculators MAY NOT be used.|
|For this exam you will be supplied with: Present Value, Compound and Annuity Tables and Formulae|
|You may take this question paper away at the end of the examination. Please keep it in a safe place for future reference.|
Answer Question 1 (this question is compulsory)
|Company||Moody’s Credit rating||Maturity Date||Coupon [% p.a.]||Payment frequency||Duration [in years]||Yield [% p.a.]||Convexity [in years]||Bond Price|
|Motor Co ltd||B++||2025||6.5%||annual||???||4.5%||???||???|
|Mining Co ltd||A1||2027||3%||annual||???||2.5%||???||???|
|Water Co ltd||A3||2023||4.5%||annual||???||1.5%||???||???|
(c) You buy an annual coupon £100bond with a 5% p.a.coupon when interest rates are 3% p.a. At this point in time the bond has 15 years until maturity. Interest rates rise to 4% p.a. immediately after your purchase and remain constant until you sell it in 8 years-time. What is your Realised Compound Yield on this bond?
(d) Explain the differences between the following bond management strategies: (i) buy and hold (ii) laddering (iii) matched funds. Identify the advantages and disadvantages of each.
Answer EITHER Question 2 OR Question 3. DO NOT answer both.
Question 2: The Dividend Discount Model
Note. For the 2-rate growth model the intrinsic value may be estimated as:
For the H-model:
For the 3-stage model:
Question 3: Technical Analysis
head and shoulders.
Explain the process through which EITHER a continuation pattern, like a flag, OR a trend reversal pattern, like a head and shoulders, may develop.
London Silver price fix September 2001 – November 2007
Halliburton share price: August 1999 – April 2000
Present Value Factors:
where n is the number of periods and r is the interest (discount) rate as a decimal
Present Value of an Annuity:
Compound Sum factor:
Compound Sum of Annuity Factor:
Table 1a: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
Table 1b: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
Table 2a: Present Value Factors (at R per cent) for £1 received at end of N periods
Table 2b: Present Value Factors (at R per cent) for £1 received at end of N periods
Table 3a: Compound Sum Annuity for £1 Compounded at R percent for N periods
Table 3b: Compound Sum Annuity for £1 Compounded at R percent for N periods
Table 4a: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N periods
Table 4b: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N period
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