Calculate the total increment prize, Finance Basics

Prudence buys a bond in EUR when it issued by the French government and inflation linked.  It offers a 2% yearly coupon.  She holds it for five years.

            Par value: EUR 10,000

            Price paid: EUR 10,100

            Coupon paid yearly at the end of the year

            Inflation:         Year 1         2%

                                    Year 2         3%

                                    Year 3         1%

                                    Year 4         1%

                                    Year 5         2%

            The coupon is reinvested each year at 1% compounded yearly.

            At the end of the five years, how many EUR does Prudence have?

            What is her average annual yield (or rate of return)?

            What was the total price increase (i.e. increase in the CPI) over the five years?

            By what percent has her purchasing power increased with the bond money over the five years.

HINT: the effective par value is increased by the inflation each year.  Assume the coupon is paid as a function of the (adjusted) par value of the bond at the end of the same year, and that after five years the full adjusted par value is paid plus, of course, the last coupon.

Posted Date: 2/22/2013 7:18:01 AM | Location : United States







Related Discussions:- Calculate the total increment prize, Assignment Help, Ask Question on Calculate the total increment prize, Get Answer, Expert's Help, Calculate the total increment prize Discussions

Write discussion on Calculate the total increment prize
Your posts are moderated
Related Questions
Question: Company XYZ currently operates a General Insurance company and would like to start selling life insurance products. The intended market is composed of both financial

Question 1: ‘The Basel II framework provides a range of options for determining the capital requirements for, inter-alia, credit risk and operational risk to allow banks and s


Zoeckler Mowing & Landscaping''s year-end 2012 balance sheet lists current assets of $436,500, fixed assets of $551,500, current liabilities of $417,900, and long-term debt of $317

Illustrate the role of credit unions in depository institutions. Credit unions: Credit unions are non-profit institutions equally organised and owned through their member

State the Classification of New Issue Market New market can be categorized as: (i) A market where firms go to the public for the first time through initial public offerin

Source of Finance for the Sole Proprietor Some sources of capital---Discuss a) Savings b) Assistance from friends or relatives c) Proceeds from sale of assets d) Ba


What are the main functions of the financial systems? The main functions of financial systems in short are as follows: a. Give the mechanisms by that funds can be transferre

The topic taken for this study is "FINANCIAL VIABILITY OF X BY APPLYING CREDIT SCORE MODEL".  The study has attempted to analyze the financial viability of the company by applyi