click here:

https://www.fidelity.com/fixed-income-bonds/fixed-income-tools-services/overview

- Please click on Price/YieldCalculator.

Please follow the steps listed:

- Set CALCULATE: Price, BOND TYPE: Corporate,YIELD-TO-MATURITY: 5 percent,ANNUAL COUPON RATE: 5 percent, COUPON FREQUENCY: Annual, MATURITY DATE:Today's Date with the year set to 5 years from now.(i.e.If today is Feb 15, 2023, then it should be Feb 15, 2028),PAR VALUE: $1000.00, QUANTITY: 1, SETTLEMENT DATE: Today'sdate(say. Feb 15, 2023). [Note that the bonds are quoted out of $100. So, $102.44 means $1024.40 for a $1000 face value. Similarly, $98.345 means $983.45]

1.Click Calculate and see the graph and other information on the right of the calculator.Briefly explain the meanings of those terms appearing on the calculator:"Price", "Accrued Interest", "Total Cost", and"Yield-to-Maturity". Is thisa discount,premium, or par bond? Why? Are the price and the cost the same? Why?

2.Compute the price of the bond using the relevant formula from the textbook.(Formula thatcomputes the present value of future cash flows of a bond, using the yield-to-maturity as thediscount rate.) Did you find the same price as Fidelity's calculator? Please write down the formula, and show the values you inserted and the result you obtained.

3.Now change the settlement date to tomorrow.(implies that the transaction takes place tomorrow.)Explain what happened to the Price, Total Cost, and Accrued Interest. How is the accrued interest calculated?

4.Now go back to the calculator, change the yield-to-maturity (YTM) to 6 percent, and note the newinformation (The settlement date is today).Is this a discount, premium, or par bond? Why?

5.Change the YTM to 4 percent.Is this a discount, premium, or par bond? Why?

6.Compare the difference in prices with YTM 4% and 6%.Are they symmetric around$1000? Explain.

7. With the Coupon = 5% and YTM = 4%, please changethe COUPON FREQUENCY to Semi-Annual and compute the new price. Is it different than the one calculated with annual compounding? Explain briefly. Compute the same using an appropriate formula from the textbook.(Make sure to show the interest rates you inserted clearly)

8. Please use a method, equation, or model of your choice and explain if bond prices are equally sensitive to the same up and down percentagechanges in the market interest rate (YTM).(i.e. If the market interest rate goes up and down, say, 1%.)

Please do not use the concept of"bond'sduration" in your explanations since it is not covered in this course. No points will be given if your answer is not supported by a method, equation, or model showing how you arrived at your conclusion.

 

9. Using a method, equation, or model of your choice, please explain theimpact of couponamounts on the interest rate sensitivityof a bond.In other words, assuming other things are identical, explain how a bond's coupon amount is connected to the interest rate sensitivity of a bond. (i.e. If the market interest rate changes, which bond's price will change more, the one with the low or high coupon?)

10. Using a method, equation, or model of your choice, please explain the relationship between thetime to maturityandinterest rate sensitivityof bonds, and other things held constant.