1 year ago, Tom purchased a $1000 face value

CFA Level I
#1

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

#2

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

#3

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

#4

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?

#5

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.

#6

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…

#7

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.

#8

But it’s asking, NOW…one year later.

#9

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

#10

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

#11

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… =)