UNIVERSITY OF MAURITIUSFACULTY OF LAW AND MANAGEMENT SECOND SEMESTER EXAMINATIONS MAY 2010 PROGRAMME BSc (Hons) Finance with Law – Level II, III BSc (Hons) Finance – Level II, III BSc (Hons) Management Minor Finance – Level II MODULE NAME DATE Portfolio Theory and Fixed Income Securities Saturday 8 May 2010 MODULE CODE DFA2012Y(3) 3 Hours TIME 9.30 - 12.30 DURATION NO. OF QUESTIONS SET 5 NO. OF QUESTIONS TO BE ATTEMPTED 4 INSTRUCTIONS TO CANDIDATES There are 2 Sections in this paper: Section A AND Section B. Section A consists of TWO (2) Questions which are compulsory. Section B consists of THREE (3) questions. Answer ANY TWO (2) questions from Section B. Candidates are required to answer FOUR (4) Questions in ALL. Section A : 30 Marks Section B : Each question carries 15 Marks the financial analyst of Ferdinand Investment Associates.55 Income Fund Fixed Income Index 0. reports the following movement in the selected benchmarks of the respective investments: Table 2 : Movements of selected benchmarks Jan 1 – 15 January 15January – 2010 31January 2010 All Equities Local +5% +39% Index Fixed Income +4% +19% Index Feb 1 – 15 February 2010 + 3% +2% Table 3 reports transactions carried out by Ferdinand Investment Associates on behalf of Mr Park.PORTFOLIO THEORY AND FIXED INCOME SECURITIES . Table 3 : Transactions carried out Jan 1 – 15 January 2010 Growth Fund Buy 1500 Units Income Fund Buy 1600 Units 15January – 31January 2010 Buy 2000 units Sell 2200 Units Feb 1 – 15 February 2010 Sell 2300 Units Buy 750 Units Page 1 of 3 .70 Correlation of the investment with its respective benchmark Value of portfolio at 1January 2010 Number of Units in the portfolio at 1 January 2010 350 000 25 000 650 000 15 000 Mr Wayne.DFA2012Y(3) SECTION A Question 1 (Compulsory) Mr Park has invested Rs 1 000 000 on the first of January 2010 in the following units managed by the Ferdinand Investment Associates: Table 1 :Mr Park’s portfolio Growth Fund Benchmarks All Equities Local Index 0. calculate the value of Mr Park’s portfolio as at that date. clearly indicating the proportion of each investment in his global portfolio. [2 marks] What will be the theoretical price if the yield to maturity falls by 100 basis points ? [2 marks] Calculate the actual price of the bond if yield to maturity effectively falls by 100 basis points. [6 marks] (b) Hence. [8 marks] [Total: 30 marks] Page 2 of 3 (d) e) .49%. Yield to maturity is at 6. that the bond is callable in 2 years.PORTFOLIO THEORY AND FIXED INCOME SECURITIES . payable annually and maturing in 3 years. [2 marks] Assume now. [4 marks] Question 2 (Compulsory) You are given the following information: Corporate US bonds 8%. (a) Calculate the followings: (i) Maculay Duration (ii) Modified Duration [4 marks] [2 marks] (b) (c) Find the PRICE VALUE OF A BASIS POINT(PVBP).DFA2012Y(3) Required : (a) Calculate the value of each unit as at 15 February 2010. Assess the main possible types risks associated with the purchase of this bond. Comment on the reported proportion. Quoted price is $104. The bond’s credit rating is CCC. growth funds or mutual funds. [15 marks] END OF QUESTION PAPER Page 3 of 3 . Discuss. [15 marks] Question 4 “An individual undoubtedly derives some advantages and drawbacks whether he invests in index funds. Discuss.PORTFOLIO THEORY AND FIXED INCOME SECURITIES . [15 marks] Question 5 “For very small change in the yield. duration can be a good approximation of the actual change in the bond price “.DFA2012Y(3) SECTION B Answer Any Two Questions Question 3 “There are essentially two ways of analyzing investments: fundamental analysis and technical analysis“.” Discuss.