Section A
 
Answer Question 1 (compulsory question)
 
Question 1
 
 

• Estimate the following:

• the duration of a 8-year £100 par bond with a 6% annual coupon yielding 3% p.a.
• the convexity of the bond
• the percentage change in the bond price and also the new bond price if the yield increases to 5% p.a.
• the duration of the bond after the increase in the yield

(40 marks)
 
The percentage change in the bond price is estimated:

• Identify the factors that determine the duration of a bond. Use these to explain the change in duration estimated in (a) above.

 
(150 words maximum, 10 marks)
 
 
 
 

• Explain how the following bond management strategies can be used to immunise a portfolio against risk: (i) buy and hold (ii) laddering (iii) duration matching (iv) horizon matching. Identify the advantages and disadvantages of each.

 
(750 words maximum, 50 marks)
 
 
 
 
 
 
 
 
 
 
Continued..
 
 
 
 
 
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
 
Answer BOTH parts

• With the use of examples describe and explain how the following tools of technical analysis can be used to make stock buy/sell decisions:
• MACD
• RSI

(50 marks)

• Theory tells us that if the weak-form of the efficient markets hypothesis holds technical analysis should not be profitable. In the light of this discuss whether or not investors should use technical analysis when making their investment decisions

(50 Marks)
 
 
Continued..
 
 
Present Value Factors:
 
     i.e.
 
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:
 
 
 
 
 
 
 
 
 
 
Continued…
Table 1a: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
 
 
 
Continued…
 
Table 1b: Compound (Future) Value Factors for £1 Compounded at R Percent for N periods
Continued…
 
Table 2a: Present Value Factors (at R per cent) for £1 received at end of N periods
 
Continued…
 
 
 
Table 2b: Present Value Factors (at R per cent) for £1 received at end of N periods
 
Continued…
 
 
 
Table 3a: Compound Sum Annuity for £1 Compounded at R percent for N periods
 
 
Continued…
 
Table 3b: Compound Sum Annuity for £1 Compounded at R percent for N periods
Continued…
 
Table 4a: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N periods
Continued…
Table 4b: Present Value Annuity Factors (at R percent period) for £1 received per period for each of N period
END.

It may not have occurred to you at the time, but you already made a huge decision in your life that was ideally suited to both incremental analysis and capital budgeting. No, it’s not your choice of whether to have pizza or Chinese food at lunch today. I am referring to your decision to pursue a post-high-school degree. If you weren’t going to college, you could be working full-time. School costs money, which is an expenditure that you could have avoided. Also, if you did not go to college, many of you would avoid mountains of school-related debt. While you cannot go back and redo your initial decision, we can look at some facts to evaluate the wisdom of your decision.
Some Facts

1. Over a lifetime of work, high-school graduates earn an average of $1.2 million, associate’s degree holders earn an average of $1.6 million, and people with bachelor’s degrees earn about $2.1 million.
2. A year of tuition at a public four-year college costs about $8,655, and a year of tuition at a public two-year college costs about $1,359.
3. There has also been considerable research on other, less-tangible benefits of post-high-school education. For example, some have suggested that there is a relationship between higher education and good health. Research also suggests that college-educated people are more optimistic.
4. About 600,000 students drop out of four-year colleges each year.

About the Numbers
Tuition is very expensive. As a result, many students have high “unmet needs”-the portion of college expenses not provided by family or student aid. Students with high “unmet” financial needs will decide not to pursue any form of post-high-school education. This has obvious implications for their long-term personal financial well-being. It also has significant implications for the well-being of the United States as a society. Research shows that people with post-high-school degrees pay more in taxes. Also, without adequate educational training of its citizenry, the United States will be less able to compete in a high-tech world.
What Do You Think?
Each year many students decide to drop out of school. Many of them never return. Let’s suppose and assume that you are working two jobs and going to college and that you are not making ends meet. Your grades are suffering due to your lack of available study time. You feel depressed. Should you drop out of school?

I want you to do a research on why one should invest money in Pharma company stocks, real estate stocks, vegan company stocks and at the end suggest me some stocks of these 3 categories were I can invest money in