Hi, I had a question with regards to q7 part (ii)(c) on the sep 2010 CT1 exam paper. the values calculated for x and y in the solutions are the values of the accumulated amounts at time 3 and 12 for the zero coupon bonds, not the amounts to be invested as stated at the begining of the solution. therefore is the solutions for question 7 (ii)(c) wrong and the nominal amounts to be invested as required by the question are actual: xv^3 and Yv^12 Thanks for your help in advance Kind Regards Salil
The question doesn't say the amount invested it says the nominal amount. For a zero coupon bond (which is redeemed at par) that will be the redemption amount.
Hi, Thanks for your reply. The question hasn't stated that the zero coupon bond will be reddemable at par and so i was a bit confused. Hope you can clear this up. Kind Regards Salil
Unless it says explicitly otherwise we always assume a bond is redeemed at par (as that is what usually happens in practice). There have been a number of exam questions where they haven't stated the redemption - because they know that we'll assume it to be at par.
