Yesterday I had my investment tute. There was a question that required us to work out the number of coupons paid by a bond. The coupons are paid every March 15 and September 15, and the bond goes from July 2007 to March 2019. So the first coupon pays on 15 September 2007 and then the 15th of every March and September until March 15, the last coupon. Clearly there should be 24 coupon dates.
The guy next to me challenged the tutor's answer, claiming that "there is only one coupon date in 2007 and one in 2019, so there should be less than 24 coupon dates." He reckoned there should only be 22 coupons.
To confirm his answer, the tutor wrote "Sep 2007" and "Mar 2019" on the board, paused and thought for a minute, then proceeded to write down the years "08", "09"...up to "18" between the two dates. He then counted the middle years twice to make sure there were 11 years in between, 22 coupon dates excluding the first and last dates, so there are 24 dates in total. He was right after all.
Clearly neither of them could count, or count quickly enough to save their lives. There are 13 years between 2007 and 2019 inclusive, so the student's calculation should be 13x2-2 = 24, since Sep 2007 and March 2019 must be excluded from the total. While the tutor had the correct count, he should know that 2018-2008 = 10, but that doesn't include the year 2008, so he must add one to his answer to get 11 years. That would have been much faster than writing every year out then count them. One wonders what he would do if it was a 50 year bond.
I was amazed -- as well as horrified -- that this was a tutorial for a third year finance subject.
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