Question No.

1 Simple Interest Rate Example

If HBL lend to UBL 10 million rupees is made for 7 days at a rate of 7% per annum, how much interest
would be received? What is the total amount repayable at the end of the period?

Solution:

▫ Interest = A*R*D/365
▫ I = 10,000,000*0.07*7/365
▫ I= 13,424.66

FV= Pv(1+i*D/365) = 10,013,424.66

Question No. 2 MTB Price Calculation Example

Assume a 6 month T-Bill with a par value of Rs. 100 and a yield of 6.48% is to be sold in an auction. What
will be its price at the time of issue?

Solution

Price (P) = 100/(1+i*n/365)

=100/(1+6.48%*181/365)

=96.89

Question No. 3 MTB Repo Example

• Security : :Market Treasury Bills

• Days to Maturity: 182
• Deal Rate :11% p.a.
• Repo Period :30 Days
• Calculate P1 & P2

Solution

• P1 Price Calculation
• P1 =100/ ( (1+ (11% * 182/365))
• = 94.80
• P2 Price Calculation
• P2 = 94.80* (( 1+ (11% * 30 /365))
• =95.66
 Question No. 4 Bond Intrinsic Value Example

Suppose that you are interested in purchasing a 3-year bond with a 10% semiannual coupon rate and
a face value of $1,000. If your required return is 7%, what is the intrinsic value of this bond?

Solution

CR  FV 0.10 1000
Pmt    50
2 2
 1 
  1  6 
 1  0.07  
1
1  1  k N 
 2  
 50 
FV 1000
VB  Pmt  


d

  1  k d  
 1
N
k 0.07 0.07

d
  2 2
   
 

$1,079.93
Question No. 5 Bond Example

Issuance Date 01.01.2015

Term 3 Years

Coupon Payment Semi Annually

Face Value/Par Value 1000

C. Rate 8%

i 10%

PV?

Solution

=(40(1-1/(1+0.05)^2)/0.05)+(1000/1.05^2)

=949
Question No. 6 Bond Example(YTM)

Issuance Date 01.01.2015

Term 3 Years

Coupon Payment Semi Annually

Face Value/Par Value 1000

C. Rate 8%

PV 949

YTM?

Solution

((40+(1000-949)/6)/(1000+949)/2

4.97

=4.97*2

10%

Question No. 7 (Bond Valuation)

Date of Issuance 1.1.15

PV 1000

CR 8%

PMT 40

I 9%

If the investor want to sell it on 12th October, what will be the price?

Solution

PV=40(1-1/(1+0.045)^5)/0.045+(1000/1.045^5)

=978

Annual Interest

=(0.08*1000*103)/365

=22.57

Dirty Price= 978+22.57

=100.57
Sale of 25 million bonds

(25,000,000*1000.57)/1000

=25,014,250

Question No. 8 (Bonds)

UBL want to sale Rs. 25 M 10 year Bond 9% coupon rate semi annually issued on 01.03.2008. UBL got
rates currently for ten years 8.45/8.30.

Calculate the amount, if UBL want to sale the Bond on above rates and trade date is 12th October 2015
and value date is 13th October, 2015.

Clean Price? Dirty Price? Total Amount?

Solution

Issue date 01.03.2008

Maturity Date 28.02.2018

Trade Date 12.10.2015

Value Date 13.10.2015

PV=(45(1-(1/1+0.0425^5)/0.0425)+(1000/1.0425^5)

PV=1,012.18

=(1000*42*0.09)/365

=10.36

Dirty Price=1012.18+10.36

=1022.55

Total Amount = (25,000,000*1,022.55)/1000

=25,563,654