EXERCISE INSTRUCTIONS
1. It is important to know what the standard rates are. Look atMoneyCafe. Click on "more interest rates." Read through the definitions and report the rates for each: Prime Rate, 1-Year Treasury, and LIBOR.
2. Go to Yahoo.com, click on Yahoo Finance, and enter Coke in the "symbol(s)" search box.
• Step (a): Record the last closing price (for example, previous close - yesterday's closing price)
• Step (b): Record the change (current price minus previousclose) for the day (up or down and how many dollars & cents)
• Step (c): Divide your change for the day (from b above) by the last closing price (from step a above). The result is typically something like 0.1234 or 0.0123. Convert the decimal to a percent (such as 12.34% or 1.23%).
Example:
• Step (a): Last closing price (previous close) of Coke = 66.26
• Step (b): Change for the day (up or down) = -$.05
• Step (c): Divide (b) by (a) = -$.05/$66.26 = 0.00075 =-.08% <-- R.O.I. in percent.
• Find the yield to maturity on the following bond.
3. I can buy a $1,000 bond for $950. I get $50 a year and it matures in 20 years. Find the YTM (interest rate). Remember this is a time value of money problem, so you need to use your financial calculator or Excel and include inputs.