3.

a) The bond prices will fall.

For example- bond with a par value of $1,000 that has 10 years. On the date the
bond matures, we’ll get the original $1,000 back. 

The bond has a 3% coupon/ interest payment rate.

=$30 a year

If we want to sell the bond one year later, but the market interest rate has increased
to 4%. Because buyers can now easily purchase a $1,000 bond with $40 annual
coupon payments so less people will be interested in the bond with $30, therefore
bond prices will fall.

b) Yes, it will be less. Assume a one-year, 10 percent bond. If the interest rate is 10
percent, the bond is worth $110 / 1.1 = $100. If the interest rate rises to 15 percent,
the bond is worth $110 / 1.15 = $95.65. The bond yield to maturity is 15 percent but
the coupon rate is lower at 10 percent, the price of the bond is less than $100.

c) It will be less. Taking example If r = 5%, then a 1-year 10 percent bond is worth

$110 / 1.05 = $104.76.

d) C = i/P
C- Coupon rate.
i- Annual interest
P- Par value/ principal amount

Example-

P= $1,000, coupon interest rate= 5%, bondholder receives= $50.

If par value increase from $1,000 to $1,500,

the effective yield on that bond changes from 5% to 3.33%.

Conversely, If the bond price falls to $750, the effective yield is 6.67%.

Therefore, high coupon bonds sell at higher prices.

e) No, low-coupon bonds have longer durations unless there is only one
period to maturity and are therefore more volatile.
Example- if r falls from 10% to 5%, the value of a 2-year 10% bond rises
from100 to 109.3 (a rise of 9.3%).
The value of a 2-year 5% bond rises from 91.3 to 100 (a rise of 9.5%).
13. Present value= C/(1+y)^n
Y= 8%
Fraction of total value= Present value / Total Present Value
For A-
TERM CASH Present Fraction of Proportion * time
FLOW value total value
1 40 37.03 0.359 0.359
2 40 34.29 0.333 0.666
3 40 31.75 0.388 0.924
Total 103.08 1 1.949 years

Volatility= Total Duration/ 1+ Yield

= 1.94 / 1+0.08 = 1.80

For B
Term Cash flow Present Fraction of Proportion*time
value total value
1 20 18.52 .141 .141
2 20 17.15 .131 .262
3 120 95.26 .728 .2.184
Total 130.93 1.0 2.587 years

Volatility= Total Duration/1+yield

2.567/ 1+0.08= 2.40

For C
Term Cash flow Present Fraction of Proportion*time
Value total value
1 10 9.26 0.088 .088
2 10 8.57 0.082 .164
3 110 87.32 0.830 2.490
Total 105.15 1.0 2.742 years

Volatility= Total Duration/1+yield

= 2.742/1.008= 2.742

4. As the RBI announced the open market operations the, Indian bond intrest fell to
their lowest shown in 2 weeks. The reason can be the shrinking of Indian GDP and
the announcement of new measures by RBI to maintain stability in the financial
system during the coronavirus pandemic
Read more at:
https://economictimes.indiatimes.com/markets/bonds/indian-bond-yields-plunge-on-
rbi-stability-measures/articleshow/77866846.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
5.My father made an investment in starting 13th may 2019 and the total value was
withdrawn on 13th march 2020. He faced a loss with an effective rate of interest of
-0.321%.

Date Transaction Value  

13 May 2019 Invested 5,000.00 -5000

31 May 2019 Invested 2,000.00 -2000
28 June 2019 Invested 2,000.00 -2000
31 July 2019 Invested 2,500.00 -2500
04 September
2019 Invested 2,000.00 -2000
04 October
2019 Invested 2,000.00 -2000
31 October
2019 Invested 2,000.00 -2000
02 December
2019 Invested 2,000.00 -2000
19,461.8 19,461.8
13 March 2020 Withdrawal 7 7
13 March 2020 Tax 0.19 -0.19
Final 19,461.6 19,461.6
13 March 2020 withdrawal 8 8
       
  Rate of return   -0.321%

6.

Presently I have taken education loan.

Loan amount taken= 25,00,000 (P)

Interest- 8% (R)
Duration- 24 months (N)
EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]
 Begining Ending
Payment No. Balance EMI Principal Interest Balance

1 2500000.00 113068.2 96401.56 16666.6 2403598.44

3 7

2 2403598.44 113068.2 97044.24 16023.9 2306554.20

3 9

3 2306554.20 113068.2 97691.20 15377.0 2208863.00

3 3

4 2208863.00 113068.2 98342.48 14725.7 2110520.52

3 5

5 2110520.52 113068.2 98998.09 14070.1 2011522.43

3 4

6 2011522.43 113068.2 99658.08 13410.1 1911864.35

3 5

7 1911864.35 113068.2 100322.4 12745.7 1811541.88

3 7 6

8 1811541.88 113068.2 100991.2 12076.9 1710550.60

3 8 5

9 1710550.60 113068.2 101664.5 11403.6 1608886.04

3 6 7

10 1608886.04 113068.2 102342.3 10725.9 1506543.72

3 2 1

11 1506543.72 113068.2 103024.6 10043.6 1403519.11

 Begining Ending
Payment No. Balance EMI Principal Interest Balance

3 1 2

12 1403519.11 113068.2 103711.4 9356.79 1299807.67

3 4

13 1299807.67 113068.2 104402.8 8665.38 1195404.82

3 5

14 1195404.82 113068.2 105098.8 7969.37 1090305.96

3 6

15 1090305.96 113068.2 105799.5 7268.71 984506.44

3 2

16 984506.44 113068.2 106504.8 6563.38 878001.59

3 5

17 878001.59 113068.2 107214.8 5853.34 770786.70

3 9

18 770786.70 113068.2 107929.6 5138.58 662857.05

3 5

19 662857.05 113068.2 108649.1 4419.05 554207.87

3 8

20 554207.87 113068.2 109373.5 3694.72 444834.36

3 1

21 444834.36 113068.2 110102.6 2965.56 334731.69

3 7

22 334731.69 113068.2 110836.6 2231.54 223895.00

 Begining Ending
Payment No. Balance EMI Principal Interest Balance

3 9

23 223895.00 113068.2 111575.6 1492.63 112319.40

3 0

24 112319.40 113068.2 112319.4 748.80 -0.03

3 3