Homework 2: TVM and Bond Valuation II. Bond Valuation: 1. Market interest rates rise from 10% and 15%. Bond face values = S1000. Price each bond at 10% and then at 15%. (For example: For bond in d, at r=10%, bond value = $200/1.10 + S1200X1.10) = $1173.55.) Also show the price change (gain/loss) for each by dividing the end value at 15% by the beginning value at 10%. Bond r = 15$ Gain/Loss? a. 1-yr. 10% coupon bond S1000.00 2 b. 30-yr., 10% coupon bond ? 672 ? c. 2-yr, zero coupon bond 2 ? 2 d. 2-yr, 20% coupon bond S1173.55 ? ? T=109 ? 1. What happened to the bond value as interest rate rose from 10% to 15%? Ans: 2. Which bond, a or b, gained/lost proportionately more as interest rate rose? Ans: 3. Which bond, c or d. gained/lost proportionately more as interest rate rose? Ans: 2. A two-year bond pays a coupon rate of 10 percent and has a face value of $1,000. (In other words, the bond pays interest of S100 per year, plus its principal of $1,000 in year 2.) If the bond sells for $960, what is its approximate yield to maturing? Hinr: This requires a little trial-and-error calculations. Ans: 3. Bond Comparisons: Look up finra.org/investors and click on "Market Data Center" under "Investor Favorites". Under Market Data (left side menu), click on "Bonds", "Corporate", and "Search". In the box "Issuer Name", type "Amazon.com" or AMZN for Symbol: get "Results". Do the same for same for Rid Aid Corp (symbol: RAD). You will see several quotes for each company. For AMZN, use AMZN4531862 (6th listing; mat: 08/22/2027); for RAD, use RAD.GE (1 listing: mat: 02/15/2027), noting the quoted price is listed as a % of a $1000 face value, meaning that a bond quoted at, say, 99.2, actually trades for $992 (quoted price times 10). AMZN RITE AID What is the coupon rate? What is each bond's rating according to S&P Does the bond sell at a premium or a discount? How much each one would cost to purchase (actual price) What is the bond's yield (to maturity)? 96 Name the risk (one word) that explains the difference in the yields between these two bonds: 4. Back to bonds (FINRA): Pick "municipal" as bond type. Get a quote for "Portsmouth" (Issue name): State: "New Hampshire": & one for "Detroit", "Michigan". Why Portsmouth's bonds have a lower yield than Detroit's? Note: Investopedia.com, as referenced on the course page, is a great resource for terminology and explanation of finance-economic concepts. Homework 2: TVM and Bond Valuation II. Bond Valuation: 1. Market interest rates rise from 10% and 15%. Bond face values = S1000. Price each bond at 10% and then at 15%. (For example: For bond in d, at r=10%, bond value = $200/1.10 + S1200X1.10) = $1173.55.) Also show the price change (gain/loss) for each by dividing the end value at 15% by the beginning value at 10%. Bond r = 15$ Gain/Loss? a. 1-yr. 10% coupon bond S1000.00 2 b. 30-yr., 10% coupon bond ? 672 ? c. 2-yr, zero coupon bond 2 ? 2 d. 2-yr, 20% coupon bond S1173.55 ? ? T=109 ? 1. What happened to the bond value as interest rate rose from 10% to 15%? Ans: 2. Which bond, a or b, gained/lost proportionately more as interest rate rose? Ans: 3. Which bond, c or d. gained/lost proportionately more as interest rate rose? Ans: 2. A two-year bond pays a coupon rate of 10 percent and has a face value of $1,000. (In other words, the bond pays interest of S100 per year, plus its principal of $1,000 in year 2.) If the bond sells for $960, what is its approximate yield to maturing? Hinr: This requires a little trial-and-error calculations. Ans: 3. Bond Comparisons: Look up finra.org/investors and click on "Market Data Center" under "Investor Favorites". Under Market Data (left side menu), click on "Bonds", "Corporate", and "Search". In the box "Issuer Name", type "Amazon.com" or AMZN for Symbol: get "Results". Do the same for same for Rid Aid Corp (symbol: RAD). You will see several quotes for each company. For AMZN, use AMZN4531862 (6th listing; mat: 08/22/2027); for RAD, use RAD.GE (1 listing: mat: 02/15/2027), noting the quoted price is listed as a % of a $1000 face value, meaning that a bond quoted at, say, 99.2, actually trades for $992 (quoted price times 10). AMZN RITE AID What is the coupon rate? What is each bond's rating according to S&P Does the bond sell at a premium or a discount? How much each one would cost to purchase (actual price) What is the bond's yield (to maturity)? 96 Name the risk (one word) that explains the difference in the yields between these two bonds: 4. Back to bonds (FINRA): Pick "municipal" as bond type. Get a quote for "Portsmouth" (Issue name): State: "New Hampshire": & one for "Detroit", "Michigan". Why Portsmouth's bonds have a lower yield than Detroit's? Note: Investopedia.com, as referenced on the course page, is a great resource for terminology and explanation of finance-economic concepts