Question 2 marking guide (16 marks)

Part a (4 marks)

2 marks for the cash flow diagram, as follows.

• Give a mark for indicating the diagram is drawn from Clarrie's perspective.
• Give a mark for indicating a negative cash flow of P (or equivalent) at t=0 years.
• Give a mark for indicating positive cash flows of coupon of 2.5 each half-year over the 14 years.
• Give a mark for indicating negative cash flows of tax of 0.75 each half-year over the 14 years.

2 marks for Clarrie's purchase price, as follows.

• Give 1 marks for using the correct methodology to calculate the purchase price (reducing appropriately for errors and omissions).
• Give a mark for correctly calculating the price.

Part b (4 marks)

2 marks for the cash flow diagram, as follows.

• Give a mark for indicating the diagram is drawn from Clarrie's perspective.
• Give a mark for indicating a negative cash flow of P (or equivalent) at t=0 years.
• Give a mark for indicating positive cash flows of coupon of 2.5 each half-year over the 14 years.
• Give a mark for indicating negative cash flows of tax of 0.75 each half-year over the 14 years, but starting at t=1.5 (not 0.5, as above).

2 marks for Clarrie's purchase price, as follows.

• Give 1 marks for using the correct methodology to calculate the purchase price (reducing appropriately for errors and omissions).
• Give a mark for correctly calculating the price.

Part c (2 marks)

Give, either

• 2 marks for saying higher price in b accompanied by solid reasoning, OR
• 1 marks for saying higher price in b accompanied by weak reasoning, OR
• 1 mark for saying higher price in b accompanied by no reasoning, OR
• mark for not saying higher or lower price but accompanied by solid reasoning, OR
• zero, otherwise.

Part d (6 marks)

• Give 1 mark for a correct statement of the equation of value that the student is working with.
• For the bond salesperson's formula.
  • Give a mark for correct values in the numerator of the formula
  • Give a mark for correct values in the denominator of the formula
  • Give a mark for the correct result
• For the linear interpolation.
  • Give a mark for a reasonable high value
  • Give a mark for a reasonable low value
  • Give one mark for showing the student's (correct) working of his/her interpolation calculation
  • Give a mark for a reasonable result (which may differ from the model solution, but should be close to it) for the effective half-yearly rate
  • Give a mark for doubling the above half-yearly rate to get a j₂ rate.
• Give a mark for the correct answer.

Which marking vector is most appropriate? (The order of the numbers in the sum follows the order of the questions.)

a.

3+2+1+2=9

b.

3+2+0+2=8

c.

3+2+0+2=8

d.

3+2++2=8

e.

3+2+0+2=7

f.

3+2+1+3=10

g.

None of the other answers

h.

3+2+0+3=8

i.

3+2+1+4=11

j.

3+2+1+4=11

175 1.75 IK 675 100 Clanie za (0.05/2)x100 100 2.5 Tase 30%x2.s = 0.75 Neet coupon 25-125 $115 1.35 BA1 i IH 13 P Zovi? 1.7567 +100128 @ 1,6% = $103.364 (per 100 fore value) 25 25 poo UK 21 145 J2=16% 25 25 25 2b 1 13 14 ? .28 SON: P = 2-saga toorto_1.15 amg @1.6% = (1-0,3V) 2.5 ay to Saggy too v 1.69. s 0.7047244x2.5*22.426594 +10oX 0.640174405 39,51143 + 64,117 405 = $103.629 (per 100 face value) Ina investor will use the coupon less tax hence the price is lower, however in b the investor uses full coupon cellowing for tese at the end therefore the price is higher d OS Sbo 13th Y 95.265 il 14. 42? +100 v QT sov:95.268=2.5 28 Yield - - ct (100up) in { Croate) Scanned with CamScanner loo :. i 29+(108-95.168)26 (100793-268) 0.027% (approx per & year) 28 2.5 ael tipos @ 27% = 96.106 2,5 96.1.6L 95.268 Try 2.8% 022] loguer@2182 44:231 Using linear interedation. (1-0.021)/(0-290.025) = (95.268-94 1231)|(16.106-94.231) = 0.02745 = 5,5% J2 175 1.75 IK 675 100 Clanie za (0.05/2)x100 100 2.5 Tase 30%x2.s = 0.75 Neet coupon 25-125 $115 1.35 BA1 i IH 13 P Zovi? 1.7567 +100128 @ 1,6% = $103.364 (per 100 fore value) 25 25 poo UK 21 145 J2=16% 25 25 25 2b 1 13 14 ? .28 SON: P = 2-saga toorto_1.15 amg @1.6% = (1-0,3V) 2.5 ay to Saggy too v 1.69. s 0.7047244x2.5*22.426594 +10oX 0.640174405 39,51143 + 64,117 405 = $103.629 (per 100 face value) Ina investor will use the coupon less tax hence the price is lower, however in b the investor uses full coupon cellowing for tese at the end therefore the price is higher d OS Sbo 13th Y 95.265 il 14. 42? +100 v QT sov:95.268=2.5 28 Yield - - ct (100up) in { Croate) Scanned with CamScanner loo :. i 29+(108-95.168)26 (100793-268) 0.027% (approx per & year) 28 2.5 ael tipos @ 27% = 96.106 2,5 96.1.6L 95.268 Try 2.8% 022] loguer@2182 44:231 Using linear interedation. (1-0.021)/(0-290.025) = (95.268-94 1231)|(16.106-94.231) = 0.02745 = 5,5% J2