Financial Math - Investments. Help needed!

Elvis1

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Oct 17, 2019
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Hi everyone,

I am studying for a financial math exam and I am really stuck on this problem, especially on the second part and I am looking to an explanation on how to solve it.

Any help would be appreciated!!
Thank you for your time.


Tizio has a capital of € 100,000 which shares equally between two investments with the following characteristics:

A: Purchase of three-year BTPs with semi-annual coupons, j(2)=5%, price=100 euros and repayment value=100;
B: Granting of a loan with repayment in 5 years of constant annual installments and interest rate of 10%.

Draw up the complete loan amortization plan B.

Tizio deposits each amount collected (coupons, refund values at maturity and loan installments) in an account that guarantees an annual remuneration of 3%.

Determine the future value at the end of the fifth year of the two investments and of the overall transaction.
 
Hi again and thank you for the reply.

This is what I have been able to do until now.


DSC_0105_3.JPGDSC_0105_4.JPG
 
(a)
You have a semi-annual coupon rate of 5%. Is there an investment rate for the BTPs? Same as the reinvestment rate, 3%?
How do we buy the BTPs? One each year? A new one at the end of the previous one? Other?

(b)
Why are you using monthly compounding when the problem statement says annual installments?

Note: Feel free to post your work in the very first post. Such significantly speeds time to useful response.
 
Hi!

Sorry for my late reply.

(a)
I rewrote exactly what was reported in the text of the exercise. I assume that Tizio invests € 50,000 for the purchase of btps at the same time and the investment rate for the BTPs is the same as the reinvestment rate.


(b)
I was wrong. Thanks for pointing that out.

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