Financial Markets and Institutions
Assignment No. 1 Marks = 5 Due Date for MBA 2nd Semester = November 16, 2009 Note:
1. Click on this link https://www.turnitin.com/newuser_join.asp?svr=11〈=en_us&r=24.0394119677273 2. In the class ID space, give these digits 2983214 3. In the password, write star 4. Complete the rest of the registration process 5. Once the registration process is complete, then login into your account 6. After login, click on the class FMI  MBA 2nd Semester 2000 7. And then click on Assignment No.1 8. Click on submit button and upload your assignment 9. After 10 minutes, you can see the orignality report of your assignment 10. If you cannot follow the above process, or not interested in the orignality report, you can simply send me your assignment on ims.assign@gmail.com
The Assignment
Suppose you are working at Muslim Commercial Bank (MCB) as credit officer. Your job is to find the minimum interest rate that your bank will charge from the most creditworthy customer. This rate is assumed to be sufficient to cover the cost of funds and the bank’s profit. The basis for your minimum interest rate calculations should be the most recent fiveyears Pakistan investment bonds (PIB) i.e. bonds issued by the government of Pakistan. MCB normally charges four percentage points more than the expected interest rate on PIB with five years of maturity. Moreover, MCB has known over the period of time the liquidity premium in case of credit worthy customers is 1.5%. Given the above, you are required to find answer to the following questions:
A. Obtain information on government securities (most recent Tbills and PIBs ) of various maturities, plot maturities of these securities against their yields and draw a yield curve and then interpret the shape of the yield curve using:
B. Given the above information, use the pure expectations theory to calculate and predict interest rates as follows:
C. After describing the current yield curve and forecasting interest rates using both the pure expectations and liquidity premium methods above,
Note: The original data source is the website of the State Bank of Pakistan( www.sbp.org.pk ) .

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