A client of Mr. Richards wants to purchase one of three bonds: (a) 10 year corporate bond with a 2.00% coupon, paying annually, and par value of $1000. (b) 7 year corporate bond with 1.75% coupon, paying annually and par value of $1,000. (c) 5 year corporate bond with a 1.50% coupon, paying annually and par value of $1,000.
1. Using the Basic TVM setup, calculate the value of these bonds, where FV is the par value, pmt is the current coupon(rate*par/frequency), PV is the current price, rate is the current market rate or in this case the coupon and rate changes, NPR is the years *M. For the rate changes, literally, copy the three bonds and then change the Rate to +/- .005 or 50 BPS. Setup a summary to show the average sensitivity of each bond and for the rate changes.
2. Briefly describe the analysis that you have performed detailing the relative prices, Also explain how the value of the bonds change in the up/down rate changes. Provide your recommendation about which bond to buy. Discussed what risk measures should be considered.