McDonalds Corp. recently completed a debt issuance consisting of two different bonds:

I. Bond I (trading under symbol MCD5472108)

II. Bond II: (trading under symbol MCD5472110).

a. Locate the price and YTM for Bond I on 9/9/2022. Then show how the YTM is calculated from the price.

b. If you instead purchased Bond II on 9/9/2022, what price would you have had to pay for the bond (per $100 face value) in order to have the same yield-to-maturity you would get if you purchased Bond I for the price in part a?

Refer to the treasury yields published by the US Treasury here.

c. Locate the actual yield-to-maturity for Bond II on 9/9/2022 what is the credit spread for the bond on 9/9/2022?

You purchase Bond II for its market price on 9/9/2022 and intend to sell it before maturity. You are concerned that bond yields will continue to rise in the future as the Federal Reserve continues to raise its interest rate. Suppose you anticipate that you will sell the bond after holding it for 10 years and collecting all coupons paid up to that point (including the coupon paid in year 10). You dont anticipate there being any change in McDonalds credit risk so you can assume that the bonds credit spread when you sell the bond is the same as it is when you purchase it (i.e. your answer to part c.). However, you expect treasury yields to change over the next 10 years in response to changes in economic conditions. Suppose the current treasury yields (as of 2/28/2023) are your best guess as to what treasury yields will be when you sell the bond 10 years after you purchased it.

d. At what price (per $100 face value) do you expect to sell Bond II 10 years after you purchase it?

e. Compute your internal rate of return (IRR), expressed as an APR, from purchasing Bond II on 9/9/2022 and selling it after 10 years.

f. Ideally, you would like to earn a minimum IRR equal to the St. Louis Federal Reserves 10-year expected inflation forecast of 2.09390% (as of February 2023). What would the yield-to-maturity (as an APR) need to be when you sell Bond II in 10 years for you to have an IRR of 2.09390% (APR)?