3. Third Avenue Railroad Company First Gold 5s were bonds (issued by theThird Avenue Railroad Company) that matured on 1 July 1937. Theypaid coupons on 1 July and 1 January. We observe the following prices

Date PriceCredit rating

30 June1937 89 Baa

31 December 1936 101 Baa

31 August 1936 102.75 Baa

31 May 1936 102.75 Baa

31 December 1935 100.25 Baa

31 January 1935 101.625 Baa

31 May 1934 98.5 Baa

31 March 1933 87 Baa

31 March 1932 90 Baa

31 July 1931 100 Baa

31 March 1931 95.25 A

31 January 1931 98 A

30 September 1930 97.375 A

31 July 1930 96 A

31 May 1929 91 Aa

30 June 1928 99.5 Aa

31 January 1928 100.5 Aa

31 December 1927 99.75 Aa

31 August 1927 99 Aa

31 May 1927 99.75 Aa

The bond had accrued interest calculated using US 30/360 (it was a cor-porate bond in the U.S.).

(a) Use the YIELD command in excel to calculate the bonds yield tomaturity on each of the dates.

(b) How is the bonds yield to maturity related to its credit rating?

(c) What is happening on 30 June 1937?

(d) Calculate the dirty price (including accrued interest) on

i. 31 May 1927,

ii. 31 July 1931,

iii. 30 June 1937.

Hint: you may find the ACCRINT command in excel useful here.

(e) What was the holding period return for an investor who held thebond from

i. 31 May 1927 to 31 July 1931?

ii. 31 July 1931 to 30 June 1937?

(f) What was the effective annual return for

i. 31 May 1927 to 31 July 1931?

ii. 31 July 1931 to 30 June 1937?