Ican 2025 Strategic Financial Management Question 6

Practice mixed question 6 from the 2025 Ican Strategic Financial Management examination.

Ican 2025 Strategic Financial Management Mixed
Question 6 ICAN • 2025 • STRATEGIC FINANCIAL MANAGEMENT • mixed
Case Stimulus
a. Prices of zero-coupon bonds reveal the following pattern of forward rates: Year Forward rates 1 4% 2 6% 3 8% 4 10% A bond with face value of N1,000 pays annual coupon of 7.5% with maturity of three years.

Requirements

( i )
What is the price of the bond?
( ii )
Estimate the yield to maturity (YTM) of the bond. Explain why an investor holding the bond may not realise the calculated YTM.
( b )
i. Calculate the duration of the bond. What does duration measure?
( ii )
As a bond portfolio manager, you are to make a choice between the following two bonds. Bond A Bond B Maturity (Years) 6 8 Duration (Years) 6 7.2 If it is generally believed that interest rates in the market will increase, which of the two bonds would you select and why? No calculations are required.

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About This Question

This is Ican 2025 Strategic Financial Management Question 6. It is one of the mixed questions from the 2025 Ican Strategic Financial Management examination.

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