Answer: SGD 0.54

## Explanation **A is correct.** Calculating the impact of the change in rates is the second step in decomposing the P&L of a bond, after calculating the carry roll-down. The impact of a rate change is calculated as the value of the bond at the end of the period using the ending forward rate curve (and the bond's beginning-of-period spread), minus the end-of-period value of the bond calculated using the forward rates assumed for the purpose of determining carry roll-down (which represent some sense of "no change" in the interest rate environment). ### Calculation: The value of the bond under the ending forward rate curve is calculated using the formula: $$ \frac{1}{1 + \frac{0.007}{2}} + \frac{0.003}{2} + \frac{1}{(1 + \frac{0.007}{2})} + \frac{0.003}{2} \cdot \left(1 + \frac{0.01}{2} + \frac{0.003}{2}\right) + \frac{101}{(1 + \frac{0.007}{2})} + \frac{0.003}{2} \cdot \left(1 + \frac{0.01}{2} + \frac{0.003}{2}\right) \cdot \left(1 + \frac{0.012}{2} + \frac{0.003}{2}\right) $$ This calculation results in SGD 101.09. Therefore, the impact of the rate change is: SGD 101.09 – SGD 100.55 = SGD 0.54 ### Key Points: - The carry roll-down value (SGD 100.55) represents what the bond would be worth if rates remained unchanged - The ending value using actual ending rates (SGD 101.09) reflects the true market conditions - The difference between these two values isolates the pure rate change component of P&L

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