# 1 year ago, Tom purchased a \$1000 face value

1 year ago, Tom purchased a \$1000 face value zero coupon bond with 11 years to marurity. YTM was 8%. Now, market rates remain unchanged, Tom purchases an annuity that pyas \$40 every half year for 10 years. The combined value of the two investments based on the 8% BEY is approximately: A 966 B 1000 C 1007 D 1456

I’d say A i get PV of annuity as 543.61 + 421.95

B: \$1000 Zero = \$456.37 N = 20; I/Y = 4; FV = 1000; CPT PV = \$456.37 Annuty = \$543.61 N = 20; I/Y = 4; PMT = 40; CPT PV = \$543.61

pepp Wrote: ------------------------------------------------------- > I’d say A > > i get PV of annuity as 543.61 + 421.95 any quick way to do this problem rather than doing 2 computations? i guess, i can ssimply treat this as a single cash flow. and then add the pv of 1 additonal yr, could someone show how to do that?

pepp Wrote: ------------------------------------------------------- > I’d say A > > i get PV of annuity as 543.61 + 421.95 Don’t forget that the Zero is now N = 20, not 22, since it’s one year later.

pepp Wrote: ------------------------------------------------------- > pepp Wrote: > -------------------------------------------------- > ----- > > I’d say A > > > > i get PV of annuity as 543.61 + 421.95 > > > any quick way to do this problem rather than doing > 2 computations? i guess, i can ssimply treat this > as a single cash flow. and then add the pv of 1 > additonal yr, could someone show how to do that? It took me less than one minute to input everything in the TVM function on my calculator…

soxboys21 Wrote: ------------------------------------------------------- > B: \$1000 > > Zero = \$456.37 > N = 20; I/Y = 4; FV = 1000; CPT PV = \$456.37 why is n = 20? it should be 22, i’d think for 11 yr maturity.

But it’s asking, NOW…one year later.

correct answer is B, annuity makes the discount zero copon bond to change to a par bond

soxboys21 Wrote: ------------------------------------------------------- > But it’s asking, NOW…one year later. MY MY!!! TRICKY!!

That’s how these dang questions work. If you miss ONE word, they’ll throw in the incorrect answer and that’sthe one you’ll get… =)