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Qn1a. See the table below for the selected companies Essay Example
 Category:Finance & Accounting
 Document type:Coursework
 Level:Undergraduate
 Page:2
 Words:794
Lecturer:
Qn1a. See the table below for the selected companies
Qn1. b. See the excel sheet for the results of the yields. They are as shown below
Table: An illustration how prices vary with YTM. The Face value is 100 for both the companies
Name of company 
Annual Coupon Rate 
Bond Value 

Bruntwood 

CLS Holding 

Ladbrokes Group 

Coventry 

Intl Personal Finance 

Eros Intl 
c. From the table in Qn 1b above, the bonds are valued at a premium (i prices are higher than the Par value of the bond) when the coupon rate >YTM .This can be seen throughout the first companies up to where the Coupon rate is not less than. The bonds are sold at a discount (bond value is less than the face value) When the coupon rate <YTM. From the given data, there are no companies trading and the face value. However, as the results show, when the coupon rate tends to be equal to YTM, the difference between the face value and the bond price gets smaller Since the observation is made from both the directions of discounted and premium bonds, it therefore means that when, the coupon rate=YTM, the bond will trade at the face value.
Qn1d. Calculated duration
Annual Coupon Rate 
time to maturity 
Duration t 

Bruntwood 
3.5312596 

4.8637996 

CLS Holding 
3.1509265 

Ladbrokes Group 
5.4703664 

Coventry 
15.6843605 

Intl Personal Finance 
3.4601513 

Eros Intl 
4.0992259 
Qn1 d. The table below can be used to verify that higher coupon rates lead to a shorter duration.
Annual Coupon Rate 
Duration time 

Ladbrokes Group 
3.4963153 

CLS Holding 
3.4777118 

Bruntwood 
3.4636376 

Coventry 
3.4602428 

Intl Personal Finance 
3.4477450 

3.4303600 

Eros Intl 
3.4303600 

When everything else is equal, Bonds with a higher YTM have a shorter duration as the table below illustrates
Duration time 

Ladbrokes Group 
3.5204016 

CLS Holding 
3.4963153 

Bruntwood 
3.4723504 

Coventry 
3.4593444 

Intl Personal Finance 
3.4247745 

3.4011584 

Eros Intl 
3.3776539 
The table below can also be used to observe(verify) that bonds with a longer time to maturity have a longer duration
maturity date 
Duration time 

Bruntwood 
03/04/2020 
3.5264248 
03/04/2030 
9.9820981 

CLS Holding 
03/04/2040 
14.6213758 
Ladbrokes Group 
03/04/2050 
18.1996212 
Coventry 
03/04/2060 
21.0486461 
Intl Personal Finance 
03/04/2070 
23.3495526 
Eros Intl 
03/04/2080 
25.2181111 
QN2. Mortgages

Taking a £500000 payable 5 years.
The most suitable mortgage is the one that covers the largest percentage of the project a convenient rate. The mortgage at 3.9% total cost that covers 85% is the best there is.
From the excel computation, the result is £9,185.71 monthly payment.

Taking £500000 payable 25 years.
A 25 year mortgage covers the largest portion of the project (90) is the best . This is because the costs will be spread over very longer period of time such that they may be easily manageable. In this case, a loan which covers 90% of the project is available at 4.1% overall cost and it is the best. Although it’s initial interest rate is higher by percentage, it is lower by actual value. The monthly payment for the said mortgage is £2,666.87 as computed from excel.
C. The Bank of Scotland is the bank of choice due to the available data for the rates. For comparison purposes, the bank was subject to the same condition as Barclays. It includes the deposit and the total cost for the loan.
D. Below is the comparison of the Bank of Scotland and Barclays.
Annual rate 
Monthly payments 

Barclays 
£500,000.00 
£9,185.71 

£500,000.00 
£2,666.87 

Bank of Scotland 
£500,000.00 
£9,253.46 

£500,000.00 
£2,694.71 

Barclays is seen as to be better than the Bank of Scotland. The difference between the 5 year plan is bigger compared to the difference between 25 year plan.
E. For both cases, based on the monthly payments, I would choose Barclays.
Qn.3. Stock Portfolios
The stocks selected are for Google and Microsoft. The workout is as shown in excel sheet
3a. Expected returns.
The average daily expected returns for the month of February is as follows : The daily expected returns can be seen on the excel sheet
Yahoo=0.30%
Google= 0.33%
3c. Variances and std deviations of Microsoft and google for the Feb
Variance 
0.000240 
0.000084 
Standard deviation 
3d. Covariance between Yahoo and Google is 0.00002859 (See the excel sheet for the formula).
3.e The returns for the two stocks have a positive correlation of 20.16%.
3.f The constructed Portfolio and the efficient frontier are as shown below
Table: Portfolio
mean return 
Variance 

Figure: The efficient Frontier plot
3.g From the portfolio table, the minimum portfolio variance is 0.00007. However, there are two points of minimum portfolio variance as seen from the table
3.h Taking into account the efficiency issues (higher returns, minimum risk), the minimum variance is at the point where risk is 0.85% and portfolio return is 0.207%. The other point is at risk=0.86% and portfolio return=0.144%