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Answer: SGD 0.54
The correct answer is A: SGD 0.54. To determine the component of the bond's profit and loss (P&L) attributable to the change in rates over the 6-month period, we follow these steps: 1. **Carry Roll-Down**: The analyst has already calculated the carry roll-down, which is the initial part of the P&L decomposition. This represents the return from holding the bond due to its coupon payments and the effect of the bond's yield curve position. 2. **Ending Value Calculation Using Ending Forward Rates**: The bond's ending value is calculated using the ending forward rate curve and the bond's beginning-of-period spread. The formula used is: \[ \text{Bond Value} = \frac{100.35 \times (1 + 0.007)^2}{(1 + 0.007)^2 - 1} + \frac{100 \times (1 + 0.007)}{(1 + 0.007)^2 - 1} \] This calculation results in an ending value of SGD 101.09. 3. **Impact of Rate Change**: The impact of the rate change is then calculated by subtracting the ending value of the bond under the forward rates assumed for the carry roll-down (SGD 100.55) from the ending value calculated using the actual ending forward rates (SGD 101.09). This gives us: \[ \text{Impact of Rate Change} = SGD 101.09 - SGD 100.55 = SGD 0.54 \] This SGD 0.54 represents the change in the bond's value due to the shift in interest rates over the 6-month period, excluding the carry roll-down effect.
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An analyst specializing in fixed-income securities is conducting an evaluation of the profit and loss (P&L) for a bond over a six-month period. This bond, which carries a semi-annual 2% coupon rate, had two years remaining until its maturity at the beginning of the analysis period. The following table provides relevant data about the bond's prices and the market rates, both compounded semi-annually:
| Beginning | Ending | Bond price (SGD) | Bond spread (bps) | Forward rates (periods in years) |
|---|---|---|---|---|
| 100.35 | 30 | 0-0.5 | ||
| 0.5 - 1 | ||||
| 1 - 1.5 | ||||
| 1.5-2 | ||||
| 101.24 | 20 | 0.8% | ||
| 1.4% | ||||
| 1.8% | ||||
| 2.1% | ||||
| 2.0% |
The analyst computed the carry roll-down of the bond and determined the ending value to be SGD 100.55, using the forward rate assumption for this calculation. Based on this information, determine the portion of the bond's P&L attributable to rate fluctuations over the six-month period.
A
SGD 0.54
B
SGD 0.69
C
SGD 0.74
D
SGD0.99