CFA

[MarkQ]

1. government bonds are instruments that pay nominal amount money (100 euros) at a certain point in time in the future (the time to maturity). About these bonds the following is known:

• A bond maturing one year from now costs today 95 euros.
• A bond maturing two years from costs today 92 euros.
• A bond maturing 3 years from now costs today 89 euros.

Based on these facts find the yield to maturity for each of the three bonds. (This quantity equals to the Internal Rate of Return of the bond on the yearly level). In performing calculations assume that the compounding is annual.


And the second one:

1. Suppose that an investment advisor offers you to invest your hard earned money in a project that has the following cash flows (the subscript denotes the time index corresponding to years from today so that subscript 2, for example, denotes the point in time two years from now).

C1= 200 C2=-250 C3=300


What is the maximum price that you should be willing to pay for this project knowing that for an alternative project of the same risk you could expect an annual return of 10%

Can someone help me in order to see if I did the exercises correctly, I couldn't find a similar question online nor in the cfa book.

 

[Onegin]

try analystforum.com they really get after these kind of questions. Alternatively, to see if you did the exercises correctly, you should post your answers for us to assess.

 

[MarkQ]

try analystforum.com they really get after these kind of questions. Alternatively, to see if you did the exercises correctly, you should post your answers for us to assess.

Thank you very much for your reply!
The second exercise I have solved thus:

The NPV money flow of an investment equals to 200,6. So, should I use then the formula for present value: PV=FT*(1+r)^3 (FT= 200,6) in order to get how much cash should I invest in this project ?

 

[Onegin]

Yes. Discounting back you would divide, not multiply: CF_FV / (1+r)^y. . .

Check out analyst forum, though. They have separate forums for each level, and the community there is helpful for questions and griping.