1. We saw in class that corporate bonds in the USA usually have semiannual coupon payments. However, in other parts of the world, bonds can have annual or other type of coupon payments frequency. Imagine that in Panama, a company issues bonds with a par value of US$ 1,000, 30 years to maturity, coupon rate of 7.9% per year, paid annually. If the yield to maturity (percentage rate of return for a bond assuming that the investor holds the asset until its maturity) equals 6.5%, what is the price of this bond? Do not use Excel. Do the three-step bond valuation process (forecast the future cash flows, determine the appropriate discount rate and solve for the present value of the expected cash flows). This should be done manually using the appropriate formulas that we already studied in Time Value of Money. Also, dont forget to draw the diagram with the cash flows of this bond (one diagram with all payments or two diagrams, separating coupons from face value). Dont draw all the arrows correspondent to the coupons, but just indicate how many times the same value repeats).

2. A bond has maturity in 18 years. Estimate the price of this bond, considering that the annual percentage rate paid to bondholders is 12%, paid semiannually, and it has a face value equal to $1,000, under three scenarios: (a) YTM= 11%, (b) YTM= 12%, and (c) YTM=13% per year. Draw the cash flows diagram and perform the calculations manually, demonstrating all the solution rationale.

3. Jeanete owns a $1,000 face value US Treasury bond, that has 5% coupon rate (nominal rate), and this bond has exactly 10 years until maturity. If the coupons are paid twice a year, and the next coupon is going to be paid exactly in six months, give the current price of this bond, if the market interest rate is 6%. What if the market interest rates fluctuate from 6% to 4%? (In the real worldsituation, it wont happen in one day, but in this problem its possible). Manual calculations, including cash flow diagram (cash flows forecasts).