10-year corporate bond with a 2.00% coupon, paying annually, and par value of $1,000. b) 7-year corporate bond with a 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.
Mr. Richards wants additional analysis on these bonds. He wants you to assume that a year has transpired and to make the following assumptions about the bonds: each bond is exactly 1 year shorter in term rate levels are 1.75% for 9 years, 1.50% for 6 years and 3 1.25% for 4 years. Calculate the value of each bond and their relative rate sensitivity from a +/- 50 BPS rate change
Using the Basic TVM setup from question 3. Now change both NPER and rates to those indicated above. Compare the change in value from par. Summarize this potential gain in a table and include it in the written analysis. Written: Briefly describe the analysis that you have performed detailing how the values changed as they rolled down the yield curve. Based on each one of these bonds rolling down the yield curve and having a gain, which bond looks to have the most gain in market value and the highest overall yield? Based on this analysis which bond would you now recommend and what additional analysis should have been performed before purchase?