2. Suppose you purchase a bond recently issued by Best Buy Co Inc. on 10/1/2020. The bond matures on 10/1/2030 and has a coupon rate 1.950%. The coupons will be paid semi-annually. a. You purchase the bond for $99.3190 (per $100 face value) on 10/1/2020. What is the bond's yield-to-maturity on this date? The table below lists treasury yields on 10/1/2020 (source: treasury.gov) Date 1 Mo 2 Mo 0.09% 3 Mo 0.09% 6 Mo 0.10% 1 Yr 0.12% 2 Yr 0.14% 3 Yr 0.16% 5 Yr 0.27% 7 Yr 0.46% 10 Yr 0.68% 20 Yr 1.23% 30 Yr 1.45% 10/1/2020 0.09% b. Based on this information, what is Best Buy's credit spread on 10/1/2020? Though you intend to hold the bond until maturity, you anticipate that there is a possibility that you will sell the bond after holding it for 3 years and collecting all the coupon payments made until then (including the coupon paid at year 3). C. You are concerned that yields may rise as the economy recovers. Suppose that when you sell the bond in 3 years, the treasury yields at all maturities will have doubled from their values when you purchase the bond on 10/1/2020. Assume that when you sell the bond, the bond's credit spread is the same as when you purchased it (i.e. your answer to b.). Compute your internal rate of return from selling the bond after 3 years (as an APR). d. You hope to have a minimum internal return of 1% (APR) from selling the bond after 3 years. What would the yield-to-maturity (as an APR) for Best Buy's bond have to be when you sell the bond in 3 years in order for you to have an internal rate of return (APR) of 1% from selling the bond? 2. Suppose you purchase a bond recently issued by Best Buy Co Inc. on 10/1/2020. The bond matures on 10/1/2030 and has a coupon rate 1.950%. The coupons will be paid semi-annually. a. You purchase the bond for $99.3190 (per $100 face value) on 10/1/2020. What is the bond's yield-to-maturity on this date? The table below lists treasury yields on 10/1/2020 (source: treasury.gov) Date 1 Mo 2 Mo 0.09% 3 Mo 0.09% 6 Mo 0.10% 1 Yr 0.12% 2 Yr 0.14% 3 Yr 0.16% 5 Yr 0.27% 7 Yr 0.46% 10 Yr 0.68% 20 Yr 1.23% 30 Yr 1.45% 10/1/2020 0.09% b. Based on this information, what is Best Buy's credit spread on 10/1/2020? Though you intend to hold the bond until maturity, you anticipate that there is a possibility that you will sell the bond after holding it for 3 years and collecting all the coupon payments made until then (including the coupon paid at year 3). C. You are concerned that yields may rise as the economy recovers. Suppose that when you sell the bond in 3 years, the treasury yields at all maturities will have doubled from their values when you purchase the bond on 10/1/2020. Assume that when you sell the bond, the bond's credit spread is the same as when you purchased it (i.e. your answer to b.). Compute your internal rate of return from selling the bond after 3 years (as an APR). d. You hope to have a minimum internal return of 1% (APR) from selling the bond after 3 years. What would the yield-to-maturity (as an APR) for Best Buy's bond have to be when you sell the bond in 3 years in order for you to have an internal rate of return (APR) of 1% from selling the bond