SZABIST

Financial Management

FOOD FOR THOUGHT
Problem Set 1

Faizan Ahmed

1

SZABIST

Financial Management

Fair Value Valuation
Relevant Formulae…

Faizan Ahmed

2

SZABIST

Financial Management

Question # 1
Construction of Yield Curve…
• Given the PKRV rates available under the sheet named RELEVANT DATA in the excel workbook provided FOOD FOR THOUGHT – SET 1, you’re required to do the following:
– Construct a short-term yield curve and comment on its shape;
– Construct a long-term yield curve and comment on its shape.

Faizan Ahmed

3

SZABIST

Financial Management

Question # 2
Valuation of Government Securities…
• Consider its January 03, 2011, you’re required to calculate the fair values of the following government securities:
Treasury Bills

Days to
Maturity

PIBs

Initial Maturity

Years to
Maturity

T-Bill – A

9

PIB – A

30 Years

3 Years

T-Bill – B

117

PIB – B

7 Years

5 Years

T-Bill – C

360

PIB – C

15 Years

11 Years

• Suppose State Bank of Pakistan (SBP) in its monetary policy announce a hike of
50 basis points in the discount rate. Please revisit your fair value calculations after accommodating the increase in your discount rates (Assume that the surge in discount rate affects every tenor equally).
*Look up the sheet named RELEVANT DATA within the excel file for appropriate discount rates.
Faizan Ahmed

4

SZABIST

Financial Management

Question # 3
Valuation of Corporate Bonds…
• Consider its March 10, 2006, Searle Pakistan in an attempt to swap its costly debt financing and fuel its expansionary needs decided to raise funds via issuing 80,000 TFCs accumulating to a quantum of PKR 400 million;
• It was mentioned in the offering document that its a 5 year investment plan with TFCs maturing on March 09, 2011;
• While coupon