Q5.

  A bank says that it will credit depositors with 10 percent annual interest on a CONTINUOUS basis.  If you make a (si
how much will be the accumulated value in the account?

Answar:
Given,
RATE (i) 0.1
PV 30000
N (n) 6
e 2.718282
We need to find the accumulated FV in the account
Continuous Compounding FV = PV*(e^(n*i)) 54663.56

Therefore, the accumulated value in the account will be 54,663.56

 6.       (a) What is the yield to maturity of a bond that has 5 years left to maturity, has 12.5 percent coupon and a face value of
a.      Assume everything else remains unchanged. This is year 2021.  What is the expected price of the bond exactly one year l
b.      What is the expected capital gain if the investor decides to hold the bond for another year?  (Assume everything else rem

a) Given,
N 5
M 1000
COUPON 12.5% of M 125
Market Price 903.74
We need to find the rate which is Yeild to Maturity of the bond

YTM 0.153987

b) Given,
N 4
COUPON 125
M 1000
RATE 0.153987
We need to find the P1 (PV) of the bond

P1 917.9046

c) Given,
Price in 2022 P1 917.9046
Price in 2021 P0 903.74
We need to find the Capital Gain

CG = (P1 - P0) 0.015673

UOUS basis.  If you make a (single) deposit of Taka 30,000 in the account for 6 years,

nt coupon and a face value of Taka 1,000, and market price is Taka 903.74?
of the bond exactly one year later?
?  (Assume everything else remains unchanged. This is year 2021.  The investor holds the bond till 2022)
 14.  (a) Identify which project is preferred, given the following information about the projects A and B.

Expected Standard
Project Return Deviation
A 20 32
B 26 38

In addition to the values provided in the previous problem, the following information are provided:
Correlation between returns of A and B = -.75
(b) If you form a portfolio of two assets as paired above with 40% of assets invested in the first asset, what
(c) Comparing among single asset A, B, and the combination of A and B as stated above, what should a ra

a) Since with the increase in return, the risk also increased in the mentioned scenario, the preference of the
Risk lovers will go for Project B which gives higher return with higher risk whereas risk averse people will c

b) Stock A 0.2 0.32 0.4

Stock B 0.26 0.38 0.6

Correlation between X and Y-0.75

Portfolio 15.68%

c) Extexted Return= (WA*E(KA)) 23.60%

A rational investor should go for combination of A & B instead of investing otherwise. The reason being, co
As we know, a negative correlation brings down the risk i.e. standard deviation.
In this case, the portfolio standard deviation is 15.68 which is less than both A & B. Also the portfolio retur
Consider the low portfolio standard deviation and moderate portfolio return, a rational investor should ch
out the projects A and B.

on are provided:

ed in the first asset, what is the standard deviation of this portfolio?

d above, what should a rational investor choose? Explain why.

nario, the preference of the given proejcts depends on the individual risk preference.
eas risk averse people will choose Project B as most likely they will not be willing to take higher risk for this amount of higher r

erwise. The reason being, correlation between A & B is negative.

& B. Also the portfolio return is 23.60 which higher than A and slightly lower than B.
a rational investor should choose the portfolio over independent A and B.
for this amount of higher return