Bond Price

Finance

1.  The rate of return you would get if you bought a bond and held it to its maturity date is called the bond- yield to maturity.  If interest rates in the economy rise after a bond has been issued, what will happen to the bond- price and to its YTM?  Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond- price? 

2.  If you deposit money today in an account that pays 6.5% annual interest how long will it take to double your money? 

3.  Spreadsheet Problem (5-24) sections a through d only.
Start with the partial model in the file Ch05 P24 Build a Model.xls (see attached spreadsheet).  A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a cell price of $1,040. The bond sells for $1,100.  (Assume that the bond has just been issued).  (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond.  Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate.  This is an oversimplification but assume it anyway for purposes of this problem).  

a.  What is the bond- yield to maturity?
b.  What is the bond- current yield?
c.  What is the bond- capital gain or loss yield?
d.  What is the bond- yield to call?
How would the price of the bond be affected by a change in the going market interest rate?  

The required method of submitting assignments is to create and attach a file through the assignment tool or drop box. You are encouraged to use Microsoft Office file format (Word.doc, word.docx, Excel.xls, PowerPoint).
Required Text

Brigham and Ehrhardt (2010) Financial Management: Theory and Practice. (13th Ed.) South Western, Thomson Learning, Inc. ISBN: 9781439078099