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Investment Planning

Discussion in 'Financial Planning Study Group' started by Ash21, 18th Nov, 2009.

  1. Ash21

    Ash21 Member

    Joined:
    18th Nov, 2009
    Posts:
    7
    Location:
    Queensland
    Hi I'm new to this site. Was just wondering if any could help with
    Question 3 in Investment planning ??????

    Question 3:
    Jenny owns an RBA bond parcel. She asks you to explain how it is possible that an investor can make or loss money on fixed interest investments.
    As part of you explanation, calculate the purchase price of a 10-eyar 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. Young Gun

    Young Gun Guest

    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.
     
  3. Ash21

    Ash21 Member

    Joined:
    18th Nov, 2009
    Posts:
    7
    Location:
    Queensland
    Hi Young Gun, im still stuck with question 3....
    I've used formula - Price= fv +c/1+ [*(DM/D]

    This is what i did

    Price= $100+4.48 / 1+[0.075* 250/365)

    = $99.41

    Am i totally wrong.........??? need help please