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KAPLAN - Investment Planning 1 assignment - Qst 3 -(Looking for Confirmation - 2 yrs)

Discussion in 'Financial Planning Study Group' started by chels84, 10th Mar, 2010.

  1. chels84

    chels84 Member

    Joined:
    5th Mar, 2010
    Posts:
    5
    Location:
    Newcastle, NSW
    Hi Everyone,

    I know there has been alot of posts about this question, but I am just hoping someone can give me a definate answer on this.

    I am doing the assignment where it asks you to calculate the 10 year Government Bond parcel with 2 FULL YEARS REMAINING. Yield Rate - 8.95% p.a. paid as half-yearly coupons with a market interest rate of 7.5% p.a. Parcel price is $100.

    The Formula I have used is the one that has been mentioned in other threads being -

    PV = FV + C/1 + (I (DM/D)

    and the answer I get is $90.85.


    Can anyone please confirm if this is correct or if they got a different aswer.

    Any help would be greatly appreciated.


    Thanks
     
  2. SteelMonkey

    SteelMonkey Member

    Joined:
    11th Feb, 2009
    Posts:
    17
    Location:
    Perth, WA
    Hi Chels

    The formula I used is PV = FV + C / 1 + I

    We have a thread going discussing this exact question(the one with two full years remaining) :
    http://www.invested.com.au/106/investment-planning-government-bond-37396/

    There are a few different answers that we have got with no confirmation on which one is correct unfortunately.

    However a consensus was reached that the value would be greater then 100

    "the market price of a coupon security will be greater than the face value if the coupon rate is greater than the prevailing market rate. "

    This doesnt really help i suppose, but hopefully some one that has the same question as us will come up with a definitive answer!
     
  3. netcentre4

    netcentre4 Member

    Joined:
    9th Feb, 2010
    Posts:
    6
    Location:
    VIC
    Hi,

    I used a wikipedia bond price calculator and the answer was also $90.85.
    I got feedback from the marker and it appears that the answer $102.64 might be wrong... How did you get $90.85. Could you please show me your calculation to get this figure.

    Thanks

    Netcentre4
     
  4. chels84

    chels84 Member

    Joined:
    5th Mar, 2010
    Posts:
    5
    Location:
    Newcastle, NSW
    Hi Guys,

    I ended up looking at this question again and I got $102.63, using formula;

    PV = C1 + C2 + C3 + C4 + FV
    1 + I (1+I)2 (1+I)3 (1+I)4

    I have since got my assignment back and I passed, so this must be correct.

    I hope this helps those still stuck on the question.