CFA CFA Level 1 Can you do this on a calc using N, IY, etc.?

Can you do this on a calc using N, IY, etc.?

  • This topic has 2 replies, 2 voices, and was last updated Jan-21 by pcunniff.
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    • pcunniff
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      Jane Walker has set a 7% yield as the goal for the bond portion of her portfolio. To achieve this goal, she has purchased a 7%, 15-year corporate bond at a discount price of 93.50. What amount of reinvestment income will she need to earn over this 15-year period to achieve a compound return of 7% on a semiannual basis?

      A)

      $459.

      B)

      $624.

      C)

      $574.

      Explanation

      935(1.035)30 = $2,624

      Bond coupons: 30 × 35 = $1,050

      Principal repayment: $1,000

      2,624 − 1,000 − 1050 = $574 required reinvestment income

      (Study Session 15, Module 46.1, LOS 46.a)

    • fp92
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      The explanation seems to have incorrect notation and missing the power function. Also I’m not sure whether the bond price stated in the question as 93.50 or 935.0? Because the answer shows 935 but I’ve used 93.50 as what you copied down, but the principle is the same (but assuming a $100 par instead of $1,000 par like the explanation)

      Total future cash flows = 93.50 * (1.035)^ 30 = 262.435

      Bond coupons = 15 * $7 = 105

      Principal repayment = $100

      So reinvestment income = 262.435 – 105 – 100 = $57.435

      What part of the question/answer do you not understand? Will see if I can explain

    • pcunniff
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      Sorry @fp92 – I was not clear enough. I was seeing if you could calculate this problem by using the TVM functions in your calculator. The question did state 93.5 as a FYI

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