# Investment Planning 1

Discussion in 'Financial Planning Study Group' started by seven, 17th Nov, 2009.

1. ### sevenGuest

Hi All,

Did any one get the answer for this question for the IP 1 Assignment.
Jenny owns an RBA bond parcel. She asks you to explain how it is possible that an
investor can make or lose money on fixed interest investments.
As part of your explanation, calculate the purchase price of a 10-year Government bond
parcel with a yield rate of 8.95% p.a. paid as a half-yearly coupon. Assume that the
prevailing market interest rate is 7.50% p.a. and that the bond parcel has 250 days until
maturity. Use a parcel price of \$100.

2. ### CJ. WentworthWell-Known Member

Joined:
9th Mar, 2008
Posts:
92
Location:
Cairns, QLD
I took into consideration the secondary market for fixed interest investments and what would happen to their market price if the interest rate rose.

3. ### studyMember

Joined:
3rd May, 2009
Posts:
11
Location:
CJ - exactly what I did.
My biggest problem was trying to work out which of the seemingly thousands of formula to use!

4. ### Young GunGuest

The value of a bond is inversely related to the interest rate.

When interest rates go, the value of your bond goes down.
When Interest rates go down, the value of your bond goes up.

There should be a formula in your text to calculate this. Using their example calculate first the value of the bond, then the value of the bond given a 1% raise/fall in the current market rate to illustrate the inverse relationship.

5. ### zoupieNew Member

Joined:
11th May, 2012
Posts:
4
Location:
brisbane,QLD
what is the face value to calculate or is there a formula that I can use?

6. ### zoupieNew Member

Joined:
11th May, 2012
Posts:
4
Location:
brisbane,QLD
what is the face value and the formula...