Case Study Fin376 Group 5

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CASE Study FIN376 Group 5
Analysis and Valuation of Fixed Income Securities (Universiti Teknologi MARA)
Studocu is not sponsored or endorsed by any college or university

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)
lOMoARcPSD|18774371
FACULTY OF BUSINESS MANAGEMENT

DIPLOMA IN INVESTMENT ANALYSIS
(BA 114)
ANALYSIS AND VALUATION OF FIXED INCOME SECURITIES
(FIN 379)
CASE STUDY/GROUP ASSINGMENT
PREPARED BY:
AINAA’ NABILAH BINTI BACHTIAR EFFENDY 2019232696

AINNUR SABRINA BINTI ABDUL MALEK 2019433216
NUR ALLISYIA IMAN BINTI MOHAMAD TAHA 2019299132
CLASS:
JBA1145F
PREPARED FOR:
SIR HAJI KHARUDIN MOHD SALI@SALLEH

lOMoARcPSD|18774371
TABLE OF CONTENTS
FRONT PAGE 1
TABLE OF CONTENTS 2
1.0 QUESTION 1 & ANSWERS 3


lOMoARcPSD|18774371
1.0. QUESTION 1
a) Explain 4 risks involve when investing in this bond.
i. Price risk. The risk that bond’s price will decline. The primary force behind a
decline in bond prices is an increase in interest rate. Thus, this type of risk also
referred to as interest rate.
ii. Default risk. Risk that investors will not receive the remaining coupon interest
rate and principal payments that they are due. It is related to the issuer financial
condition.
iii. Market risk. The value of investment may decline over the given period simply
because of economic changes or other events that impact portions of the
market.
iv. Legislative risk. The risk that a new law or changes in an existing law could
have a significant impact on the investment.

lOMoARcPSD|18774371
b) Compute the amount paid for a unit of this bond in MYR if the expected return on this
bond is expected on 6.6% and the exchange rate is SGD1/MYR3.06 (disregard fees
and other expenses)
PV= RM 100,000 Coupon payment= 6% / 2 x 100,000 = SGD 3,000
Interest rate/yield = 6% Yield = 6.6% / 2 = 0.033

Expected Return = 6.6% n = (2029 – 2020) (2) -1 = 17 years
18/3/2019 18/9/2020 1/11/2020 18/3/2021 18/3/2029
Issuing date Coupon date Purchase date Coupon date Maturity date
Days of A period; Days of C period;

18/9 = 12 days 1 month = 30 days
1/10 – 31/10 = 31 days 6 months = 30 days x 6 = 180
1/11 = 1 day
44 days
PP’@ Dummy Price = CP [1-(1+r) ^(-n) / r] + Redemption Price (1+r) ^(-n)
= 3,000 [1 – (1.033) ^ (-17) / 0.033] + 100,000 (1.033) ^ (-17)
= 38,560.88 + 57,583.03
= SGD 96,143.91
Purchase Price @ Dirty Price = P’ [1 + I (a/c)]
= SGD 96, 143.91 [1 + (0.033 x (44/180)]

lOMoARcPSD|18774371
= SGD 96, 919.47
SGD to MYR
= SGD 96, 919.47 x 3.06
= RM 296, 573.58
c) Supposed Aspian Tres Singapore call this bond on March 18, 2025. Compute the
approximate realized yield for YXZee fund assuming the coupon interests received
were not reinvested.
Call Price = PV + (PV X 10%)

= SGD 100,000 + (100,000 x 10%)
= SGD 110,000
n = (2025 – 2020) (2) – 1 = 9 years
a = 44 days
I = 200 basis point or reduce at 2%
= 6.6% - 2% = 4.6%
= 4.6% / 2 = 0.023% (SEMI ANNUALIZED)
C
A
18/3/2019 18/9/2020 1/11/2020 18/3/2021

18/3/2025
PP’@ Dummy Price= CP [1-(1+r) ^(-n) / r] + Redemption Price (1+r) ^(-n)

= SGD 3,000 [ 1 – (1.023) ^ (-9) / 0.023] + SGD110,000 (1.023) ^ (-9)
= 24,139.8122 + 89,642.0917
= SGD 113,781.90
Purchase Price= P’ [1 + I (a/c)]

= SGD 113,781.90 [ 1+ (0.023 x 44/180)]
= SGD 114,421.61

lOMoARcPSD|18774371
Yield to Call = CP + [ call price – purchase price/n] / [call price + purchase price/2]
= SGD 3,000 + [(SGD 110,000 – SGD 114,421.611) / 9] / [ SGD 110,000 +

SGD 114,421.611 / 2]
= (2,508.7099 / 112,210.8055) x 100
= 2.2357%
Annualized yield to call = 2.2357% x 2
= 4.4714%

lOMoARcPSD|18774371
2.0. QUESTION 2
a)
Coupon rate = 12% x RM 1000 = RM 120/2
CP = RM 60
Yield = (9 + 1) / 2 = 5%
n = 5 years, 3 months = 5.25 x 2 = 10.5 years
5/9/2019 28/11/2019 5/3/2025
(Purchase date) (Maturity date)
I. Bond price = CP(PVIFA5%,10.5) + PV(PVIF5%,10.5)
1−(1+0.05)−10⋅5
= RM 60 [ 0.05
] + RM 1000 (1 + 0.05)−10⋅5
= RM 60 (8.0176) + RM 1000 (0.5991)
= RM 481 056 + RM 599.1
= RM 1080.16 x 500 units
= RM 540 080

lOMoARcPSD|18774371
From 5/9/2019 to 28/11/2019

5/9 – 30/9 = 26
1/10 – 31/10 = 31
1/11 – 27/11 = 27
TOTAL DAYS 84
PP = P [ 1 + i (a/c)]
= RM 1080.16 [ 1 + 0.05 (84/180)]
= RM 1080.16 (1.0233)
= RM 1105.36 x 500
= RM 552 680
1000−1105.36
YTM = RM 60 + [ 10.5
]
(1000 + 1105.36) / 2
= RM 49.97 / RM 1052.68
= 0.0475 @ 4.75% (semi-annual)
= 9.5% (annualized)
II. Yield = 10 – 4 = 6/2 = 3% (1 November 2020)
Sell back 500 units on 15 January 2021 when yield= 5.8/2 = 2.9%
Bond price = CP(PVIFA2.9%,10.5) + PV(PVIF2.9%,10.5)
1−(1+0.029)−10⋅5
= RM 60 [ ] + RM 1000 (1 + 0.029)−10⋅5
0.029
= RM 60 (8.9416) + RM 1000 (0.7407)
= RM 536.50 + RM 740.7
= RM 1277.20 x 500 units
= RM 638 600

lOMoARcPSD|18774371
Sell price = RM 1277.20 [ 1 + 0.029 (132/180)]
= RM 1277.20 (1.0213)
= RM 1304.36 x 500
= RM 652 180.89
Capital gain/ loss = RM 652 180.89 – RM 638 600
= RM 13 580.89
b)
Bond A = CR, 8%, bought 2 years ago, 2 years left to maturity
Bond B = CR, 8%, bought 2 years ago, 4 years left to maturity
Yield = 8 – 0.5 = 7.5%
CP = 8% x RM 1000 = RM 80
Bond A = CP(PVIFA7.5%,2) + PV(PVIF7.5%,2)
1−(1+0.075)−2
= RM 80 [ 0.075
] + RM 1000 (1 + 0.075)−2
= RM 80 (1.7956) + RM 1000 (0.86533)
= RM 143.65 + RM 865.33
= RM 1008.98
Bond B = CP(PVIFA7.5%,4) + PV(PVIF7.5%,4)
1−(1+0.075)−4
= RM 80 [ 0.075
] + RM 1000 (1 + 0.075)−4
= RM 80 (6.8028) + RM 1000 (0.7488)
= RM 267.94 + RM 748.80
= RM 1016.74
Bond B is more volatile compare to Bond A as Bond B has a longer maturity time than Bond
A. Thus, Bond B is more sensitive in any changing rates happen in bond calculation.

lOMoARcPSD|18774371
3.0. QUESTION 3
Par Value= RM 1,000

Coupon= (8% x RM 1,000) = RM 20
4
Redemption Value= 112% x RM 1,000 = RM 1,120
Yield= 10% = 2.5%
4
Current Yield
CY= RM 80
RM 920
CY= 0.087 X 100
CY= 8.70%
Yield to Maturity
YTM= RM 20 + [ (RM 1,000 – RM 920) ]

4
[ (RM 1,000 + RM 920) ]
2
YTM= 0.04167 x 100 = 4.167%
YTM= 16.67% (Annualized)
Yield to Call
YTC= RM 20 + [ (RM 1,100 – RM 920) ]

32
[ (RM 1,100 + RM 920) ]
2
YTC= 0.0254 X 100 = 2.54%
YTC= 10.16% (Annualized)
Capital Gain
Yield
CG= (RM 1,000 – RM 920)

RM 920
CG= 0.086957 X 100 = 8.6957%
10

lOMoARcPSD|18774371
a= 180
c= 180
Coupon Payment= (4% ÷ 2) × 𝑅𝑀1,000 = 𝑅𝑀 20
Yield= 10% ÷ 2 = 0.05
n= 20 × 2 = 40
1/11/2015 1/5/2021 1/11/2035

(Issued) (Value) (Matured)
𝟏−(𝟏+𝒓)−𝒏
P’= 𝑪𝒐𝒖𝒑𝒐𝒏 𝑷𝒂𝒚𝒎𝒆𝒏𝒕 ( ) + Redemption Price (𝟏 + 𝒓)−𝒏
𝒓
1−(1+0.05)−40
P’= 𝑅𝑀 20 ( ) + RM 1,000 (1 + 0.05)−40
0.05
P’= RM 343.1817 + RM 142.0457
P’= RM 485.2274
𝒂
PP= 𝑷′ ( 𝒄 × 𝟏 + 𝒓)
180
PP= 𝑅𝑀 485.2274 (180 × 1 + 0.05)
PP= RM 509.4888
11

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𝒂 𝑪𝑹
Accrued Interest (AI)= × × 𝒑𝒂𝒓
𝒄 𝒎
180
AI= [180 × 𝑅𝑀 20]
AI= RM 20
Book Value (BV)= 𝑷𝑷 − 𝑨𝑰
BV= 𝑅𝑀 509.4888 − 𝑅𝑀 20
BV= RM 489.4888
12

lOMoARcPSD|18774371
4.0. QUESTION 4
BM Inc
Coupon price= 9.25%
Yield= 92.25%
Buying price= 92.25% x RM 1,000 = RM 922.50
Capital gain yield=
Capital gain yield= (RM 1,000 – RM 922.50)

RM 922.50
Capital gain yield= 0.084 x 100
Capital gain yield= 8.40%
TTC
Coupon price= 11% ÷ 2 × 1,000= RM 55
n= 17 × 2= 34
Buying price= 102.5% x RM 1,000 = RM 1,025
Yield to Maturity=
Yield to Maturity= 55 + [ (RM 1,000 – RM 1,025) ]

34
[ (RM 1,000 + RM 1,025) ]
2
YTM= 0.0536 X 100= 5.36%
13

lOMoARcPSD|18774371
YTM= 10.72% (Annualized)
i) Bond B
Coupon price= (10% ÷ 4) × 𝑅𝑀 1,500 = 𝑅𝑀 37.50
Yield= 9% ÷ 4 = 0.0225
𝟏−(𝟏+𝒓)−𝒏
PP= 𝑪𝒐𝒖𝒑𝒐𝒏 𝑷𝒓𝒊𝒄𝒆 ( 𝒓
) + Par Value (𝟏 + 𝒓)−𝒏
1−(1+0.0225)−8(4)
PP= RM 37.50 ( ) + RM 1,500 (1 + 0.0225)−8(4)
0.0225
PP= RM 848.9128 + RM 735.9785
PP= RM 1,584.89
Bond C
Coupon price= (7% ÷ 1) × 𝑅𝑀 2,000 = 𝑅𝑀 140
Yield= 10% ÷ 1 = 0.1
𝟏−(𝟏+𝒓)−𝒏
PP= 𝑪𝒐𝒖𝒑𝒐𝒏 𝑷𝒓𝒊𝒄𝒆 ( 𝒓
) + Redemption Price (𝟏 + 𝒓)−𝒏
1−(1+0.1) −14(1)
PP= RM 140 ( 0.1
) + RM 2,000 (1 + 0.1)−14(1)
PP= RM 1,031.3362 + RM 526.6625
PP= RM 1,558
ii) Yield= 4% ÷ 1 = 0.04

𝟏−(𝟏+𝒓)−𝒏
PP= 𝑪𝒐𝒖𝒑𝒐𝒏 𝑷𝒓𝒊𝒄𝒆 ( ) + Par Value (𝟏 + 𝒓)−𝒏
𝒓
1−(1+0.04)−14(1)
PP= RM 140 ( 0.04
) + RM 2,000 (1 + 0.04)−14(1)
PP= RM 1,478.8372 + RM 1,154.9502
PP= RM 2,633.79
𝑅𝑀2633.79−𝑅𝑀1558
Percentage change in price= 𝑅𝑀1558
× 100%
Percentage change in price= 69.05%
14

lOMoARcPSD|18774371
5.0. QUESTION 5
a)
CP = 7/4 = 1.75% x RM 1083 = RM 18.95
n = 12 years
PP = 90.25% x RM 1200
= RM 1083
1200−1083
YTM = RM 18.95 + [ 12
]
(1200 + 1083) / 2
= RM 28.7 / RM 1141.5
= 0.025142 @ 2.5142% (quarterly)
= 10.0568% (annualized)
b) Capital gain = Selling price – Purchase price

= RM 1200 – RM 1083
= RM 117
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒−𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒

Capital gain yield =
𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒
= (RM 1200 – RM 1083) / RM 1083
= 0.1080 @ 10.8%
15

lOMoARcPSD|18774371
c)
n = 6 x 4 = 24 years
Call price = (5.5% x RM 1200) + RM 1200 = RM 1266
𝐶𝑎𝑙𝑙 𝑝𝑟𝑖𝑐𝑒 −𝑃𝑃

YTC = CP + [ 𝑛
]
(Call price + PP) / 2
1266−1083
= RM 18.95 + [ 24
]
(1266 + 1083) / 2
= RM 26.575 / RM 1174.5
= 0.0226 @ 2.26% (quarterly)
= 9.04% (annualized)
d) Purchased 20 units on 3 November 2020 at 110.75%

(Purchase date) (Maturity date)
8/8/2018 8/9/2020 3/11/2020 8/12/2020 8/8/2030

(Previous payment) (Next payment)
a
I. From 8/9/2020 to 3/11/2020 (a)

8/9 – 30/9 (30 – 8) = 22
1/10 – 31/10 = 31
1/11 – 3/11 = 3
TOTAL OF DAYS 56
II. From 8/9/2020 to 8/12/2020 (c)

1 month = 30 days
3 months x 3 = 90 days
16

lOMoARcPSD|18774371
𝑎 𝐶𝑅
Accrued Interest (AI) = × × 𝑝𝑎𝑟 𝑣𝑎𝑙𝑢𝑒
𝑐 4
= (56/90) x (7% / 4) x RM 1200
= RM 13.07 x 20 units
= RM 261.33
Total Purchase Price = AI + Price
= RM 261.33+ (110.75% x RM 1200 x 20)

= RM 261.33+ RM 26 580
= RM 26 841.33
e) The impact of callable bond to the company is it provides the company flexibility to
pay off debt early. Callable provision allows the company to call back the debt and
reissue it at lower coupon payment rate in a falling interest rate environment and thus
benefits the company. Therefore, this helps the company to refinance its debt as an
alternative at a lower interest rate since the company can surely borrow money at a
lower interest rate.
17

lOMoARcPSD|18774371
6.0. QUESTION 6
P 7 YEARS P1 8 YEARS
15 YEARS
Coupon Payment = 8.5% / 2 x 1000 = 42.5
i = 8.5% / 2 = 4.25%
PURCHASE PRICE @ P
= C (PVIFA 30, 4.25%) +RV (PVIF 30, 4.25%)
= RM 42.50 (16.78) + RM 1000 (0.2869)
= RM 1000
BOND PRICE
= C (PVIFA 4.875%, 16) + RV (PVIF 4.875%, 16)
= RM 42.50 (10.935) + RM 1000 (0.4669)
18

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= RM 931.64
[ALTERNATIVE 1]
TOTAL COUPON RECEIVE FROM REINVESTMENT
= C (FVIFA 3.5%, 6) (FVIF 4.5%, 8) + C (FVIFA 4.5%, 8)
= RM 42.5 (6.5502) (1.4221) + RM 42.5 (9.38)
= RM 794.54
INTEREST ON INTEREST
= RM 794.54 – (RM 42.50 X 14)
= RM 199.54
TOTAL RETURN
= P1 + Total Coupon
= RM 931.64 + RM 794.54
= RM 1,726.18
REALIZED YIELD
= (RM 1,726.18 / RM 1000) ^ (1/14) – 1
= 0.0397 @ 3.98% (semi annual)
= 7.95% (annualized realized yield)
[ALTERNATIVE 2]
TOTAL COUPON PAYMENT FROM REINVESTMENT
= C (PVIFA 3.5%, 6) (PVIF 3.5%, 8) + C (PVIFA 4.5%, 8)
= RM 42.5 (6.5502) (1.3168) + RM 42.50 (9.38)
= RM 765.23
19

lOMoARcPSD|18774371
INTEREST ON INTEREST
= RM 765.23 – (RM 42.50 X 14)
= RM 170.23
TOTAL RETURN
= RM 931.64 + RM 765.23
= RM 1,696.87
REALIZED YIELD
= (RM 1,696.87 / RM 1000) ^ (1/14) – 1
= 0.0385 @ 3.85% (semi annual)
= 7.70% (annualized realized yield)
-The portfolio manager has to choose alternative 1 because it has higher realized yield than
alternative 2.
20

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lOMoARcPSD|18774371

CASE Study FIN376 Group 5

Analysis and Valuation of Fixed Income Securities (Universiti Teknologi MARA)

Studocu is not sponsored or endorsed by any college or university

FACULTY OF BUSINESS MANAGEMENT

ANALYSIS AND VALUATION OF FIXED INCOME SECURITIES

CASE STUDY/GROUP ASSINGMENT

AINAA’ NABILAH BINTI BACHTIAR EFFENDY 2019232696

SIR HAJI KHARUDIN MOHD SALI@SALLEH

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

1.0 QUESTION 1 & ANSWERS 3

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

a) Explain 4 risks involve when investing in this bond.

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

PV= RM 100,000 Coupon payment= 6% / 2 x 100,000 = SGD 3,000

Interest rate/yield = 6% Yield = 6.6% / 2 = 0.033

18/3/2019 18/9/2020 1/11/2020 18/3/2021 18/3/2029

Days of A period; Days of C period;

PP’@ Dummy Price = CP [1-(1+r) ^(-n) / r] + Redemption Price (1+r) ^(-n)

= 3,000 [1 – (1.033) ^ (-17) / 0.033] + 100,000 (1.033) ^ (-17)

Purchase Price @ Dirty Price = P’ [1 + I (a/c)]

= SGD 96, 143.91 [1 + (0.033 x (44/180)]

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

= SGD 96, 919.47

= SGD 96, 919.47 x 3.06

Call Price = PV + (PV X 10%)

18/3/2019 18/9/2020 1/11/2020 18/3/2021

PP’@ Dummy Price= CP [1-(1+r) ^(-n) / r] + Redemption Price (1+r) ^(-n)

Purchase Price= P’ [1 + I (a/c)]

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

= SGD 3,000 + [(SGD 110,000 – SGD 114,421.611) / 9] / [ SGD 110,000 +

= (2,508.7099 / 112,210.8055) x 100

Annualized yield to call = 2.2357% x 2

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n = 5 years, 3 months = 5.25 x 2 = 10.5 years

5/9/2019 28/11/2019 5/3/2025

(Purchase date) (Maturity date)

I. Bond price = CP(PVIFA5%,10.5) + PV(PVIF5%,10.5)

= RM 60 (8.0176) + RM 1000 (0.5991)

= RM 481 056 + RM 599.1

= RM 1080.16 x 500 units

Downloaded by jrj hrtshytjyt (lebhero216@gmail.com)

From 5/9/2019 to 28/11/2019

= RM 1080.16 [ 1 + 0.05 (84/180)]

= 0.0475 @ 4.75% (semi-annual)

II. Yield = 10 – 4 = 6/2 = 3% (1 November 2020)

Bond price = CP(PVIFA2.9%,10.5) + PV(PVIF2.9%,10.5)

= RM 60 (8.9416) + RM 1000 (0.7407)

= RM 1277.20 x 500 units

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Sell price = RM 1277.20 [ 1 + 0.029 (132/180)]

Capital gain/ loss = RM 652 180.89 – RM 638 600

Bond A = CP(PVIFA7.5%,2) + PV(PVIF7.5%,2)

= RM 80 (1.7956) + RM 1000 (0.86533)

Bond B = CP(PVIFA7.5%,4) + PV(PVIF7.5%,4)

= RM 80 (6.8028) + RM 1000 (0.7488)

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Par Value= RM 1,000