Assignment: Fixed Income Securities
Using the simple time value of money concepts you learned in the Corporate Finance (FINA.6010) course:
- Calculate the price of an annual coupon-bond with a par value of $1,000, time to maturity of 10 years, coupon rate of 10% and yield to maturity of 10%.
- Do the sensitivity analysis on the price of this bond by changing the following (one variable change at a time):
o Time to maturity from 1 year to 50 years in increments of 1 year.
o Coupon rate from 0% to 20% in increments of 1%.
o Yield to maturity from 1% to 20%
- Calculate the price of a zero-coupon bond with a par value of $1,000, time to maturity of 10 years, and yield to maturity of 10%.
- Do the sensitivity analysis on the price of this bond by changing the following (one variable change at a time):
o Time to maturity from 1 year to 50 years in increments of 1 year.
o Yield to maturity from 1% to 20%
For each sensitivity analysis part, create a table and a graph. The graph should show the relationship between the variable that you changed and price of the bond. The graph type should be the smooth line kind under the charts icon that shows scatter dots.
Under each graph write a sentence or two explaining the relationship between the variable that you changed and the bond price.
Finally, write a few sentences that compare the sensitivity of the coupon-bond with the zero-coupon bond for similar change in time to maturity and yield to maturity.
Sensitivity analysis = studying the effect of changing one variable value on an outcome of interest. In the Corporate Finance course, this analysis was done for project NPV.