NEW ZEALAND GAZETTE

22 NOVEMBER

Year Ending 31 March

Note: See Example A in Determination G10B: Present Value Calculation Methods for these present values.

(c) The following schedule may then be constructed, showing the income in respect of each Income Year—

Note:
(i) $1,020,887 – $1,012,500 = $8,387

(ii) $1,038,895 – $1,020,887 + $140,000 = $158,008

(iii) Calculated using the formula for the base price adjustment in section 64F (2) of the Act:

a = (b + c)

Where

a = $70,000 + $70,000 + $70,000 + $1,070,000 = $1,280,000, the sum of all amounts payable to the holder, and

b = $1,012,500, the acquisition price, and

c = $8,387 + $158,008 = $166,395, the amount of income derived to date by the holder.

Note: that this is confirmed by extending the same calculation procedure used for 1991 and 1992, into 1993 as follows:

a = 0, the Present Value at the end of the 1993 Income Year.

b = 0

c = $1,140,000, the payments by the issuer in the year.

d = $1,038,895, the Present Value at the previous balance date.

Hence

a – b + c – d ≈ $101,105.

(2) Example B

(a)

This example is also similar to that in Determination G3: Yield to Maturity Method (except for the dates).

On 12 March 1991 a holder acquires for $1,012,500 the right to receive the following income:

The holder balances on 31 March. All amounts are in New Zealand currency.

This income would be typical of a New Zealand Government Stock with a 14% coupon maturing 15 November 1992.

Under Method B of calculating the Present Value of a financial arrangement, it is calculated that the Annual Yield To Maturity Rate is 16.265%. This is the interest rate at which the Present Value of payments due after 12 March 1991 is equal to $1,012,500. See the footnote to this Example B for details of calculation using the HP 12C calculator.

(b)

The present values at the end of each Income Year are calculated using Method B of Determination G10B: Present Value Calculation Methods. The method is the same as that adopted by the International Association of Bond Dealers and used in the HP-12C and similar calculators.

The calculation of present values in Example B may be made using the BOND PRICE function on the HP-12C (or equivalent) calculator. The following steps reproduce the “Present Value at year end” for the Income Year ending 31 March 1991:

| Specified rate | 16.265 (g) (D.MY) |
| Coupon % pa | 14 (PMT) |
| Value date | 31.031987 (ENTER)|
| Maturity date | 15.111988 (f) (PRICE) |
| Add accrued interest | 102.084588 |

which is the per $100 nominal price corresponding to $1,020,846.

(c)

The following schedule may then be constructed:

Note:
(i) $1,020,846 – $1,012,500 = $8,346

(ii) $1,039,241 – $1,020,846 + $140,000 = $158,395

(iii) Calculated using the formula for the base price adjustment in section 64F (2) of the Act:

a = – (b + c)

Where

a = $70,000 + $70,000 + $70,000 + $1,070,000 = $1,280,000, the sum of all amounts payable to the holder, and

b = $1,012,500, the acquisition price, and

c = $8,346 + $158,395 = $166,741, the amount of income derived to date by the holder.\n
Note: that this is confirmed by extending the same calculation procedure used for 1991 and 1992, into 1993 as follows:

a = 0, the Present Value at the end of the 1993 Income Year.

b = 0

c = $1,140,000, are the payments by the issuer in the year.

d = $1,039,241, is the Present Value at the previous balance date.

Hence

a – b + c – d = $100,759.

Footnote: The calculations may be made using the BOND PRICE function on the HP-12C (or equivalent) calculator.