2. Bond Basics a. What is the price of a bond with a 5-year maturity, face value of $100,8% coupon rate and yield to maturity of 3%? (lay out the cash flow and do the present value calculations; also use the formula - see the template in the google spreadsheet). b. If a bond is issued with a face value of $100, a five-year maturity, a coupon rate of 7%, how much should I be willing to pay for it in order to get a 6% yield? (no template this time - it's for you to figure it out on your own!) c. Which bond has the highest yield? Bond #1 has a face value of $100, a maturity of 20 years, a coupon rate of 4% and is trading at $ 105. Bond #2 has a face value of $100, a maturity of 15 years. d. If I buy a 10-year bond with a face value of $100 and 6.5% coupon rate at a discount for $95, what is my return if I hold to maturity? If instead of holding to maturity I sell the bond the following year for the same price, what would be my rate of return? Would it be lower or higher than the yield to maturity? How would the answer change if the price had gone up to $96? Make sure you outline all relevant calculations. 4 5 What is the price of a bond with a 5 year maturity, face value of $100, 8% coupon rate and 3% yield to maturity? 7 Year Yoar Year Year 1 Year 4 2 3 5 CF PV 10 11 12 Price (sum of PVS) Price (use PV formula) 13 14 15