Consider a bond with market value $92.37 (face value = $100) and a coupon of $5.059 dollars paid every six months (Semi-annually - December and June). The time to maturity is 10 semiannual periods. Assume today is January 1st, 2015. Therefore, the face value of the bond will be repaid on December 2019.

Upload your spreadsheet on the course website (you might want to use the spreadsheet 11 Bond Yield and Duration Example that we analyzed in class as a starting point for your calculations) and provide the answers to the following questions on paper.

1. Compute the annual YTM of the bond, using Excel Solver (note: the question asks for the annual YTM, not the semiannual. If you compute the semiannual YTM, you must compound it using the effective annual rate formula). [1.25 points]
2. Compute the duration of the bond. Please say clearly what unit you are using, e.g. duration is N years or duration is N semiannual periods. [1 point]
3. Four years from now, if the YTM remains constant, what will be the resale price of the bond? (HINT: since time to maturity is now 10 semiannual periods, the bond will have a time to maturity of two semiannual periods, four years from now; the cash-flow that you must consider to compute the price are two coupon payments, and the face value repaid at maturity). [1.25 points]
4. If the reinvestment rate is equal to the YTM, what is the terminal value of the portfolio after 4 years? (HINT: the terminal value of the portfolio is the sum of the coupons reinvest at the reinvestment rate, plus the revenues from selling the bond 4 years from now) [1.25 points]
5. If the reinvestment rate is now 5% (semiannual), what is the terminal value of the portfolio after 4 years? Why is it almost the same as your previous answer? Why isnt it exactly the same as your previous answer? (HINT: the change in the reinvestment rate affects both the value of the reinvest coupons, and the resale price of the bond). [1.25 points]