CFA Official Mock AM #49 Scott

[Croky]

All,
Question 49 - Fixed Income - Scott
Can someone explain me how they reached the FV of 141.87 on the solutions for this question? They will invest the coupons with the Forward rate which will produce an higher return comparing with the YTM 6.72% but I don’t know how they reach to that value.
Much appreciated!

 

[kyrsbev]

(7*1.0501*1.0703*1.0906*1.111 + 7*1.0703*1.0906*1.111 + 7*1.0906*1.111 + 7*1.111)+107 = 141.87
Then you annualize: 141.87/101.15 ^ 1/5 -1 = 7% which is greater than 6.72%

 

[Claudz6]

just did this question - did i miss something? the text says the YTM on the bond is 7% and the coupon is 7%, but the answer says the realised return should be different..and ends with the comment that the realised return is > than the 6.72% YTM.
Does it mean there was a typo in the text and so should have said the YTM on the bond is 6.72? I cant see otherwise why the realised return shoudnt = the YTM.
did i miss something - ive also looked at the fwd rates on the curve and theyre all in line with the spot rates - so ultimately i still get the 7% yield.

 

[kyrsbev]

@Croky: That calculation I placed above is what I learnt directly from the CFAI official texts. You can read more there. Schweser doesn’t expound on it like the official curriculum books do.