Assignment:
This assignment consists of two parts. The first part consists of four problems to be solved using Excel. You should submit your answers in an excel file with each question clearly labeled, all inputs listed (for example, r=.03), and your answer clearly labeled. Each question in Part One is worth five points. Part two is a writing assignment.
PART ONE:
Question 1: Company X offers a 10 year bond that has a coupon rate of 5 percent and semiannual payments. The face value is $1,000 and the YTM is 12.6%. What is the current value of this bond?
Question 2: A 20 year zero coupon bond has a face value of $1,000, a required rate of return of 5%, and semi-annual compounding. What is this bond worth today?
Question 3: A 15 year bond was issued on 1/1/2012 at its face value of $1,000. It has a coupon rate of 8% and semiannual payments (made on 6/30 and 12/31 each year). The market rate as of 7/1/2015 was 6%. What is this bond worth on 7/1/2015?
Question 4: Company X has 7.5 percent coupon bonds that pay interest semiannually. The face value of each bond is $1,000 and the current market price is $1,012.20. If the yield to maturity is 7.6 percent, how many years is it until these bonds mature? Round your answer to the nearest 10th of a year (for example, 3.2 years).
PART TWO:
Write a memo to your supervisor in which you explain five factors that affect the yield on a corporate bond. For each factor, explain how it affects the price of bonds with varying maturities. You should assume that your supervisor has some knowledge of finance but little knowledge of bonds.