6. You are interested in investing in some corporate bonds from companies that have been severely hurt by the Covid virus. You do some research and find there are five companies whose bonds are currently yielding around 20%. Each of the bonds is described in the table below. Answer the questions that follow. You may use Excel if you wish, although with some time on a calculator you can answer each of the questions. If you do use Excel I still want to see your work: formulas used, sub-amounts calculated, etc. 8x 10% Maturity Coupon Coupon YTM Date Eace Amount Bond 1 20% 2025 $ 10,000 Bond 2 10% 18% 2025 $ 20,000 Bond 3 12% 28% 2025 $ Bond 4 12% 20% 2025 $ 10,000 Bond 5 22% 2025 $ 10,000 # What is the price of each bond? What is your total investment amount? b. What is the par value of each bond? Assume you purchase one of each bond. 1. What is the YTM of your portfolio? Assume that one week after you purchase the bonds, the company that issued Bond 5 defaults and never pays you one cent of principal or interest. Assume further that all the other bonds pay interest (annually and principal according to the terms. What would your YTM turn out to be? d. What would your YTM have been if you invested in Bond 3 ONLY? What would your YTM have been if you invested in Bond 1 ONLY? 1. Using your answers to d. and e. and any other concepts we've covered in class, describe the difference and expected outcomes of following each of these strategies 1 Buying one of the bonds in enough quantity to approximate your total investment from a. above, or Buying one of each bond 6. You are interested in investing in some corporate bonds from companies that have been severely hurt by the Covid virus. You do some research and find there are five companies whose bonds are currently yielding around 20%. Each of the bonds is described in the table below. Answer the questions that follow. You may use Excel if you wish, although with some time on a calculator you can answer each of the questions. If you do use Excel I still want to see your work: formulas used, sub-amounts calculated, etc. 8x 10% Maturity Coupon Coupon YTM Date Eace Amount Bond 1 20% 2025 $ 10,000 Bond 2 10% 18% 2025 $ 20,000 Bond 3 12% 28% 2025 $ Bond 4 12% 20% 2025 $ 10,000 Bond 5 22% 2025 $ 10,000 # What is the price of each bond? What is your total investment amount? b. What is the par value of each bond? Assume you purchase one of each bond. 1. What is the YTM of your portfolio? Assume that one week after you purchase the bonds, the company that issued Bond 5 defaults and never pays you one cent of principal or interest. Assume further that all the other bonds pay interest (annually and principal according to the terms. What would your YTM turn out to be? d. What would your YTM have been if you invested in Bond 3 ONLY? What would your YTM have been if you invested in Bond 1 ONLY? 1. Using your answers to d. and e. and any other concepts we've covered in class, describe the difference and expected outcomes of following each of these strategies 1 Buying one of the bonds in enough quantity to approximate your total investment from a. above, or Buying one of each bond
