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#1
08-17-2010, 11:01 AM
 jasonou Join Date: Jul 2010 College: University of Waterloo Posts: 25
Need help with this bond question

A 5000 serial bond with 10% annual coupons will be redeemed in five equal installments of 1100 beginning at the end of the 11-th year and continuing through the 15-th year. The bond was bought at a price P to yield 9% annual effective. Determine P.
A. 5000 B. 5227 C. 5537 D. 5764 E. 5991

Solution:C

I first discount all 5 level redemption values back to time 10 and then I want to apply the basic pricing formula
PV=Fr a angle 10 + CV^10 (I use Fr=500 and C is PV of that 5 level redemption values)
however, I got A in this calculation.

Can any body tell where do I make a mistake?
Or is it serial bond still on exam?
#2
08-17-2010, 11:14 AM
 Car'a'carn Member SOA Join Date: Jul 2004 Location: The Waste Posts: 4,678

Since the coupon rate is higher than the yield the bond must be sold at a premium, so A is not the answer. I suspect that you are using wrong rate in your calc.
#3
08-17-2010, 11:33 AM
 Gandalf Site Supporter Site Supporter SOA Join Date: Nov 2001 Location: Middle Earth Posts: 26,452

Search is your friend. If you search the FM forum for "serial", you may find other references.

I'm not sure, but several posters have said serial bonds are no longer on FM.
#4
08-17-2010, 11:52 AM
 jasonou Join Date: Jul 2010 College: University of Waterloo Posts: 25

Thank you both, I got it. I forgot to include that decreasing coupons from year 11 to year 15

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