FIN2001 Assignment 3 1. You have the opportunity to purchase a bond. The bond has a $50,000 par value, pays a 4% quarterly coupon, and has an YTM rate of 3%. Answer the following questions. a. Before doing any math, explain what you think will happen to the bond value and why this will happen. (4 points) b. Calculate the value of the bond if it has 6 years until maturity. Use the four-step approach we used in class for full credit. (8 points) 2. XYZ Corporation has two bonds outstanding. One was issued 25 years ago at a coupon rate of 9%. The other was issued five years ago at a coupon rate of 6%. Both bonds were initially issued for 30 years with a face value of $10,000. The going interest rate for similar risk bonds is 10%. a. What are the prices today of both bonds? Hint: How many years does each have left. (12 points) b. Identify AND explain the areas of risk associated with bond investing. Hint: The components that make up the rate/required return. (8 points) 3. You have the opportunity to invest in either a State of Georgia general obligation bond or a General Motors bond. The Georgia bond pays a coupon of 3.75% and the General Motors bond pays a coupon of 5.25%. Your tax rate is 37%. Which bond should you select? Be sure to show the math and explain your answer. (4 points)