CORPORATE FINANCE PROBLEM SET II Part 1: Bond Pricing 1. Disney has just issued a 16-year bond to finance its digital strategy. The face value of the bond is 1,000$. The bond is based in USA and pays coupon semi-annually; being the annualized coupon yield 2.4%. The current interest rate for this bond is 0.95% in semi-annual terms. (2 points) Please calculate: a. PV of the bond b. If the bond is quoted in the market at 1,050$, will you recommend the purchase? c. Is the bond a discount, par or premium bond? d. If you expect the annual interest rates to increase by 1%, what would you recommend doing? 2. (1.5 points) a. You have the following instruments, pleas calculate the PV of the following bonds (with face value 1,000 ): 4.25% annual coupon bond, 4-year maturity, current market yield is 3.47% . 4.8% annual coupon bond, 6-year maturity, current market yield is 3.6% 5% annual coupon bond, 15-year maturity, current market yield is 4% b. Some years ago, you bought a 8% annual coupon bond with a face value of 1000 that had a YTM of 9% and 10 years left until maturity at that time. Suddenly you are forced to sell the bond today at the market price of 912. What is your capital gain/loss? 1