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Kaplan Investment planning

Discussion in 'Financial Planning' started by TGUN, 15th Oct, 2009.

  1. TGUN

    TGUN Member

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    HEyyy

    Has anyone does the investment planning assignment for Kaplan?

    Im stuck on Question 3 and 5.

    pleaseeeeeeeeee help! :confused:

    T.
     
  2. Jimm

    Jimm Member

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    Have finished it and happy to help
     
  3. wallstreet

    wallstreet New Member

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    Hii Jimm,
    Can you please help me in question3. Which formula should I use regarding RBA bond? Very confusing.
    Thanks.
     
  4. Jimm

    Jimm Member

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    Hi Wallstreet, It looks like you have got this question going over two threads. It may be a good idea to clean up and bring them together. The equation you used on the other thread is the right one:
    Price=FV+C/1+[I*(DM/D)]
    After that explain how money can be lost if the bond is traded on the secondary market prior to maturity. I made this clear by including an excel table that showed how different interest rates affect the price of the bond
     
  5. wallstreet

    wallstreet New Member

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    Thanks Jimm for your valuable suggesstions. I was really confused. Now feeling better. Hopefully I can finish it now.
    Thanks again for your time.
     
  6. jessieclare

    jessieclare New Member

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    Hi Jimm

    I'm still stuck. For question 3 I wrote the following but apparently it's wrong and I dont know why. Can you help?

    In order to calculate the purchase price of the 10-Year Government Bond I have assumed it has a face value of $50,000.

    $100+(8.95/2)
    PV = 1+[0.075x(250/365)]

    PV = $99.37 x 500

    PV = $49,685
     
  7. CJ. Wentworth

    CJ. Wentworth Well-Known Member

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    Why have you assumed a face value of $50,000? Why not just use the value you have in your calculation ($100)

    In either case though, if you redo the calculation with a higher/lower interest rate, how does it affect the market value?
     
  8. Sophi

    Sophi Member

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    Hi Jimm,
    I am new too this site and just dived into my IP1 assignment...
    I might be missing something but if how much is the FV, is it the $100 parcel price? :S and somehow bring that together as it is in the Example in the text book?
    Thanks a million :)
     
  9. Lourdes

    Lourdes Member

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    Help Investment Planning 1

    Hi everyone

    I was in the same boat here, was doing Q3 on my IP1 assignment. I managed to do the calculation as described by Jimm, but I don't really understand the result. I put together a table with different market interest rates, but it shows different result with the text book.

    According to Kaplan study notes, when market interest rate is lower than the Coupon rate, the purchase price will be lower than the future value, vice versa. My calculations show the opposite.

    ie. if i assume interest rate is at 5%, coupon rate is 8.95%, purchase price = $101.016 and future value = $100

    I'm a bit confused on the future value, does this stay $100 for my comparison or do I add the coupon payment to it?
    Do I understand this wrong? Please helpppp. Thanks

    Lourdes
     
  10. Sophi

    Sophi Member

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    hi Lourdes,

    why are you assuming the market interset rate is 5%? it says in the question that it is 7.5%. thnx - when is your assignment due?
     
  11. Lourdes

    Lourdes Member

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    Hi Sophi

    I just made some comparison to the interest rates, it can be any amount.

    Mine's due in April, I tried to finish it early but looks impossible.

    I have problems reading so many words in the book.

    How are you doing with yours?
     
  12. CJ. Wentworth

    CJ. Wentworth Well-Known Member

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    Are you sure this is what it says? The opposite sounds true.

    When Market Interest Rates are higher than the Coupon Rates offered, why would anyone buy them? IE their perceived value falls.

    When the Coupon Rate is higher than Market Rate, their perceived value should rise, as they are offering higher returns than the market.
     
  13. Lourdes

    Lourdes Member

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    Hi CJ

    I'm reading the study notes again, you are correct. I got confused between purchase price and market price of the coupon.

    So, it makes sense now and the interest rates table also makes sense.

    Thanks for your help.

    I'm moving on to Q5 now, still figuring how to answer question c.

    Are you doing IP1 as well?
     
  14. tsh01

    tsh01 Member

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    IV - question 3

    answer question 3.
    Answer: She cannot benefit from increases in market interest rates that may occur during the term of the investment as her investment rate is fixed for the term of your investment.
    Interest rate market may be volatile. Investments in these markets may involve actual losses if she requests the bank to terminate her fixed interest investment prior to her maturity.
    She should ensure that she is able to monitor the interest rate movement when investing in this product, the bank may be dealing on its own account in interest rate markets and such dealings may influence interest rates. Therefore if the interest rates rise then her bond price will fall.

    PV = $50,000 + 4.75% x 175/365 = $50,000
    PV = 3 + 0.057 = 3.057
    PV = 50,000 % 3.057 = 16355.90**

    hope this help..
     
  15. Sophi

    Sophi Member

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    hi tsh01,
    sorry to ask but what is that $50K in your calculations? as the question says "Use a parcel price of $100".I believe the FV= $100; thanks,
     
  16. garycon06

    garycon06 Member

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    q3

    hey sophie, have you since figured out the correct answer, I am stuck on this too? thank you
     
  17. loon

    loon New Member

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    Loon

    Hi All,

    I'm currently trying to finish of DFP1 IP can anyone help?
     
  18. beckstag

    beckstag Member

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    Hi Loon,

    I'm currently trying to finish my assignment due in under 2 weeks (eek!)
    Maybe we can bounce some ideas of each other. Is there anything you're partriculalry stuck on??
     
  19. HOCFP

    HOCFP Active Member

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    Urgent help req

    Hi all iam doing IP assignment especially question three and its doing my head in...i so dont know which formula to use to calculate the purchase price for the bond?

    any help please would be appreciated?:mad:
     
  20. stav

    stav Member

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    hey, iv just passed my assignment, happy to help.

    This is the formula used for the Purchase Price of the bond:

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