FIN3020
FIXED INCOME INSTRUMENTS
13 May 2021 Examination
Answer any THREE questions from the FOUR available. Submit your answers by 12.30pm.
All questions carry an equal number of marks. Please submit your answers in a word document
(doc/docx) through the Assignment portal on Canvas. You can attach supplementary Excel calculation
submissions separately through this portal also, if required. If you are doing so, please refer to your Excel
spreadsheet in the text body of your doc/docx answer file, similar to how you might reference a table or
figure in a report. You cannot access S&P Capital IQ or the Bloomberg terminals during the exam. You
will receive marks for going beyond reciting the material provided in the lecture slides. As the submission
will be checked for plagiarism be mindful not to directly copy text from any sources. This is an individual
exam that is to be completed on your own.
Answer any THREE questions.
Question 1.
I am a naïve investor trying to decide what bond to choose. Can you outline and explain to me the main
metrics I might use in order to assess and compare various bond investments? Can you outline the details
of the calculations undertaken by giving illustrative examples, using either hypothetical or real world
figures? Critically appraise the metrics you outline with reference to today’s market environment, and
highlight situations where they might, and might not, be so useful. You may wish to upload a
supplementary Excel spreadsheet to illustrate your calculation examples. (100 marks)
Question 2.
Discuss the main yield curve theories i.e., those theories that provide a rationale for the observed shape of
the yield curve/term structure of interest rates. Which arguments do you find the most/least compelling
from the various theories? Do you have any alternative theories/ideas around what might be driving the
yield curve shapes observed? (100 marks)
Question 3.
What role do credit rating agencies play in fixed income markets? Who do they benefit? In your opinion,
what are the positive and negative aspects of the information they provide? Would you suggest any
changes to their approach, and why? Refer to alternative market risk measures in your discussion. (100
marks)
Question 4.
Discuss the main bond trading strategies. Give your opinion on what the positive and negative aspects of
each type of investment strategy are. What strategy/strategies would you recommend to a potential
investor? Give different scenarios based on a hypothetical investor’s situation or needs. What
performance would you predict from such strategies going forward? Refer to recent market dynamics in
your answer. (100 marks)
END OF EXAMINATION