Schweser Practice Exam Vol I Exam 3 PM Q13 why, required, anybody, please

ashycal

Hi,
Can anybody please explain why the required terminal value is calc. using semiannual compounding i.e. why is it 100*(1.03)^10 and not 100*(1.06)^5
Thanks in Advance !!!

AndyNZ

It’s semiannual paying bonds, so there are 5 *2 = 10 payments at 6%/2 = 3% coupon rates.

segalm

So does it depend on what kind of bonds I am using to immunize….so if I use annual coupon paying bonds to immunize I have to use annual compounding because nothing given about the liability that we are immunizing.

profil

I saw the question and was able to figure out it was about immunization.
The CFAI textbook always uses semi annual compounding for these immunization problems. The bond will most likely be semi-annual.

Windjam

Thanks CFAdreams and mp2348….Contingent Immunization and Implementation shortfall are two topics I cannot get into my brain ….Cheers !!!