Assignment: Bond Valuation and Yields
Below are four bond problems that you must solve. Enter your answer and supporting calculations into a Word document and submit it. You will need to use a financial calculator or an online financial tool, but you must include what information you are entering and what you are computing in your submission. Assume the bond face value is $1,000.
1. You are considering the purchase of a 7%, 15-year bond that pays interest annually. If the yield to maturity on the bond is 6%, what price will you pay? Round your answer to the nearest cent.
2. What is the current yield on the bond from #1? Round your answer to the nearest tenth of a % (e.g., 12.2%).
3. Assume that you purchased the bond at the price determined in #1. It is now two years later and the bond is selling for $1,120. What is the bond's yield to maturity at this point in time? Round your answer to the nearest tenth of a percent.
4. Assume that you purchased the bond at the price determined in #1. Now you sell the bond for $1,120. Assume you receive the second year's interest payment on the sale date. What is your rate of return on this investment? You must use a financial calculator to compute this return and round your answer to the nearest tenth of a percent.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.