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.

I took into consideration the secondary market for fixed interest investments and what would happen to their market price if the interest rate rose.

CJ - exactly what I did. My biggest problem was trying to work out which of the seemingly thousands of formula to use!

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.