Bond problem 1. You won the recent Powerball lottery and now have lots of cash to spend. To share your good fortune with your fellow ASU alumni, you are looking to make an investment in a new start-up by an ASU alum with the hopes of generating a large return on your investment. One of your friends suggested FSL Incorporated because he is using their software and thinks it is high quality. FSL is a new start-up company developing accounting software. The company currently has 3 employees writing code and your friend is their only client. FSL is selling 8% coupon bonds that mature in 5 years and have a par value of $1,000. How would you rate the risk of FSL? Government Bonds Coca Cola Tesla No risk Low risk Moderate Risk High Risk Very high risk Extreme Risk 3% 8% 15% 20% 35% 11% I rate the risk of FSL as Therefore the interest rate to price the bond is Based on your answer above, find the value of the bond today: Question Answer Hints Annuity payment per year from the bond coupon rate x Par PVFA PVFA 1-(1+r) r The coupon payments are an annuity FV PV of the coupon payments PV of the lump sum payment Value of the bond today PV of a lump sun PV of the coupon payments + PV of the lump sum