Category International Commodity Trading

Bond Pricing the RCY and bond management – Forward Rates and the Term Structure

Bond Pricing the RCY and bond management


(a) What are ‘bond characteristics’? Explain how these influence the way that a bond price changes in response to changes in market interest rates?

(b) Using the following UK government gilts currently in issue:
Treasury 8% 31st December 2015
Treasury 8% 31st December 2021
Treasury 6% 31st December 2028
Estimate the fair price of these £100 semi-annual bonds for a yield of 3% p.a. as at 31st December 2011 (it can be assumed that the yield curve is flat).
(c) If yields increase to 3.5% p.a. estimate the new fair price of the bonds in (b) above.

Order Now - AllAssignmentHelp

Order Now – AllAssignmentHelp

(d) A 4 year bond of £100 face value has a coupon of £9 that is paid once per year. If the expected interest rates are 8% 7% 6% and 5% respectively for the next 4 years...

Read More

Investment Analysis – Duration, Convexity and Risk Immunisation

Duration, Convexity and Risk Immunisation

(a) Estimate the duration of a 7-year £100 par bond with a 6% annual coupon yielding 4% p.a.
In addition, estimate the percentage change in the bond price and also the new bond price if the yield increases to 4.20% p.a. The convexity is 55.9.
(30 marks)
(b) Using the following data, estimate the new bond prices of each of the 3 bonds if their yields (interest rates) increase by 0.25%. You should take into account both duration and convexity.

Duration, Convexity and Risk Immunisation

Duration, Convexity and Risk Immunisation

(c) Discuss the techniques that could be used by a bond portfolio manager to immunise their portfolio against risk.
Does the fact that many European countries have lost their AAA bond rating make it more difficult for fund managers investing in government bonds to immu...

Read More

Explain why commodity futures markets need to be liquid to function effectively and how speculators can help increase the degree of liquidity

Question 1
(a) For any one specific commodity market which has a related futures market, explain briefly:
i. What factors have influenced commodity prices in recent years?
ii. How the pattern of futures prices relate to spot prices (eg contango or backwardation), giving reasons for this pattern.

(b) Outline a trade that a producer, consumer or speculator in this market may wish to engage in, constructing a numerical example using realistic quantities and prices. Using your own suggested figures for price changes, calculate the net outcome of this trade.

Order Now - AllAssignmentHelp

Order Now – AllAssignmentHelp

Question 2

(a) Explain why commodity futures markets need to be liquid to function effectively and how speculators can help increase the degree of liquidity.
(b) How does the open interest measure attempt to se...

Read More

International Commodity Trading – The differences between a forward contract for a commodity and a commodity futures contract

Question 1
Explain each of the following.
(a) The differences between a forward contract for a commodity and a commodity futures contract.
(b) Why commodity producers and consumers may wish to use these forms of contract rather than deal solely in the spot market for a commodity.
(c) What the relative merits and limitations of these two forms of contract are.

Order Now - AllAssignmentHelp

Order Now – AllAssignmentHelp

Question 2

If a commodity has a “contango” pattern of futures prices:
(a) What does this mean?
(b) What are the main reasons for this sort of pattern of futures prices?
(c) Why may an element of “convenience yield” cause the basis to be below the full cost of carry?
(d) How may events that disrupt supply and cause uncertainty, such as the impact on the cocoa market of the 2002 conflict in the Ivor...

Read More