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4. Attempt all questions. Begin your answer to each question on a new page.
5. Actuarial Tables and graph paper will be available on request.
Priya wants to purchase a 15 year bond which pays interest in arrears of 10% p.a. convertible half yearly. She will have an option to redeem the bond at par any time between the 10th year and the 15th year. Priya paid a price of Rs. 102 to purchase the bond, what would be the maximum effective yield that she can get out of this bond?
A loan has an interest rate of 12% p.a. payable half yearly in arrears and will be redeemed at 120% in ten years time. An investor who is subject to income tax at 30% and capital gains tax at 40%, wants to purchase the loan. What price does he have to pay to get a net yield of atleast 10%?
A fund has to make payments of Rs. 100,000 at the end of sixth year and Rs. 120,000 at the end of the ninth year. Show that, if interest rates are currently 9% at all durations, immunization to small changes in interest rates can be achieved by holding an appropriately chosen combination of a five year zero coupon bond and a twelve year zero coupon bond.
A project has an initial outlay of Rs. 150,000, expenses of Rs. 20,000 at the end of 1st Year and Rs. 15,000 at the end of 2nd year. The income from the project are Rs. 20,000 at the end of each of the first 4 years and Rs. 200,000 at the end of the 5th year. Calculate the IRR (upto 1 decimal place) for this project?
What is the accumulated value of a 5 year annuity of 1 per annum in arrears payable monthly increasing at 10% p.a. each year. The interest rate assumed is 8% p.a. convertible half yearly?
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