Category Investment Analysis Assignment

Dividend Discount Model – Share Price Risk – Technical Analysis

Dividend Discount Model (DDM)
(a) Company A pays an annual dividend of 35p per share. The required rate of return is 11% p.a.

(i) If that level of dividend payment is expected to be constant into the future what is the intrinsic value (or fair price) of the share?
(ii) If the next dividend payment is expected to be 7% higher than the last, and if this rate of dividend growth is expected to be maintained over time, what is the intrinsic value of the share?

(b) Company B is a new company that is currently enjoying rapid growth. It is estimated that dividends will grow at an annual rate of 12% over the next four years. After that, the growth rate will fall to 6% p.a. and remain at that rate. The directors have just paid an annual dividend of £1.25.
Calculate the intrinsic value of the share ...

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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.

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(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...

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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...

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