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

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

 

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!

 

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

 

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.