RBA Bond Parcel Calculations...HELP

Hi All,

Still studying but I can see the light at the end of the tunnel ....except its being blocked by BOND PARCELS. Any help would be fantastic:

Calculate Purchase Price;
* 3 year Government bond parcel;
* yield rate 4.75 paid as half yearly coupon
* Market interest rate 5.75% and 175 days till maturity

Applying the formula PV = FV + C / 1 + I

**********That's all the info, I am still missing a value for the calculation??? Is there a set purchase price for government bond parcels? $100,000 or am I off the mark.

If someone could show me how to apply this formula it would be greatly appreciated.

 

Hi Toeyazz,

I thought the formula was "A" RBA: Pricing Formulae for Commonwealth Government Securities.

Not that that is going to make it easier to calculate!

Good luck,

Dan

 

The face value is fixed, I think you are expected to remember what it is. (It has been a while since I have done it, but I think it is $100,000 for the RBA, you should check this on their site, or in the study notes.)

 

I also do not think that formula is right. I would calculate the Present Value of the future cash flows. (Their is only one coupon left to be paid, so makes it easy)

ie.
PV = FV(1+I/365)^T_days + C*(1+I/365)^T_days
PV = FV(1+0.0575/365)^175 + FV*(0.0475/2)*(1+0.0575/365)^175
which could be written as
PF = (FV + C) * ( 1+I/365)^T_days

However the the bottom formula is only useful if there is only one coupon left. I always use the top formula, as while it is longer it is easy to add to if there are more coupons.

Cheers,
Ash