1. The current price of a bond is 100. The instantaneous rate of change or derivative of the price of the bond with respect to the yield rate is 700. The yield rate is an annual effective rate of 8%.
Calculate the Macaulay duration of the bond. Note: Recall that it is customary to drop the negative when computing volatility or modified duration.
(a) 7.00
(b) 7.49
(c) 7.56
(d) 7.69
(e) 8.00
Answer: ____________________
2. A fund earned a net investment income (i.e. Ending Balance (Starting Balance + Deposits/Withdrawals)) of 9200 during 1999. The beginning and ending balances of the fund were 100000 and 129200, respectively. A deposit was made at time K during the year. No other deposits or withdraws were made. The fund earned 8% in 1999 using the dollarweighted method.
Determine then date corresponding to time K.
(a) April 1 (b) May 1 (c) July 1 (d) Sept. 1 (e) Oct. 1
Answer: ____________________
3. 2000 is deposited into a newly opened fund on January 1, 1999. Another deposit is made into the fund on July, 1 1999. On January 1, 2000, the balance in the fund is 6000. The timeweighted rate of return in 1999 is 8.0% and the dollarweighted rate of return is 4.8%.
Calculate the balance of the fund on July 1, 1999, immediately before the deposit is made. Give your answer rounded to the nearest whole number.
Answer: ____________________
4. The following two investment options are viewed under an annual effective interest rate of i.
. Investment A is a 10year zero coupon bond which redeems at parvalue 250.
. Investment B is a perpetuityimmediate paying an annual payment starting with 4 and having each successive payment increase by X% from the previous payment.
If the volatility of each investment is 8, then find the value of X. Give your answer as a percentage rounded to two decimal places.
Answer: ____________________