my questions is on the last worksheet the IV Callable. I also have a question on the work sheet labeled I concept interest rate. Adams Inc. recently borrowed money for one year at 11%.The pure rate is 3%, and Adams? financial condition warrants a default risk premium of 3% and a liquidity risk premium of 2%.There is little or no maturity risk in one-year loans.What inflation rate do lenders expect next year?

MBA618.7x Module 3 Graded Assignment (Available points=85pts) *You are not allowed to do this assignment with other people. *You are not allowed to discuss this assignment with other people. *Show all of your work for any possible partial credit. *All necessary calculations should be done on this excel file to show how to get your outputs. Then, I can figure out process as to how your answers were obtained. Therefore, simply showing numbers as a result does not earn any point. * Be sure to answer exactly what is asked in the problems. *Save your work file in the following format of the file name: M03_Assignment_Last Name_First Name.xls (x). Any su accepted. *Absolutely....\"One File Policy!!!\" You have to pack all your answers into this excel file. If you need a word documen incorporate MS word document into this excel file. Follow these operations to import MS document into the excel file: In \"Word Document\" from the drop-down list. *Rules for Rounding off Numerical Values While working on your calculations, i) Round the number in percentage upto the second decimal place (e.g., 2.3567..% 2.36%) ii) Round the dollar values upto the second decimal place if they are not whole numbers. I II III IV 1 2 3 1 2 3 4 1 2 3 4 5 1 2 Available Points 5 8 6 6 6 6 6 6 6 6 6 6 6 6 85 outputs. Then, I can figure out the whole a result does not earn any point. ame_First Name.xls (x). Any submission through the email will not be ile. If you need a word document to write your answer down, please S document into the excel file: Insert (from menu bar)>Object...>choose %) 1) \"Short-term interest rates are more volatile than long-term interest rates, so shortterm bond prices are more sensitive to interest rate changes than are long-term bond prices.\" Is this statement true or false? Explain. (Hint: Recall interest or bond price risk) Short term bonds maybe more sensitive to changes in short-term rates, but long term bonds are more sensitivegenerally to changes in rates, with longer term zero coupon bonds being the most sensitive.The reason is that bonds represent a series of cashflows (interest payments) over time plus a final payment atmaturity. To find the value of the bond, you discount the cashflows by the applicable interest rate using the netpresent value formula. Since long bonds have more interest payments over time, there is a bigger change to the valuewhen interest rates are changed.The answer to your question is false because short term bonds are valued on short-term rates and longer term bondsare based on long term rates. Changes in short term rates do not necessarily move in lockstep with changes in long-term rates. Longer term rates have more of an inflation expectation component. 2) Indicate whether each of the following actions will increase or decrease a bond's yield to maturity: a. The bond's price increases. b. The bond is downgraded by the rating agencies. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. d. The economy seems to be shifting from a recession to a boom. Discuss the effects of the firm's credit strength in your answer. e. Investors learn that the bonds are subordinated to another debt issue. Answers: a b c d e Increase :I" or decrease "D"? D I I I If the economy shifs to a recession, then the probability of default on its bond would increase 3) Adams Inc. recently borrowed money for one year at 11%. The pure rate is 3%, and Adams' financial condition warrants premium of 3% and a liquidity risk premium of 2%. There is little or no maturity risk in one-year loans. What inflation rate expect next year? e more sitive.The payment rate using is a bigger se short . Changes term rates aturity: ts in the m's credit s bond would increase ' financial condition warrants a default risk ear loans. What inflation rate do lenders 1) Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going i semiannual compounding. What is the bond's price? Coupon Par value = FV $1,000 rate 7.25% Periods/year 2 Yrs to maturity 15 Periods = Years 2 = N 30 Going annual rate = YTM = rd 6.20% Periodic rate = rd/2 = I/YR 3.10% Coupon rate Par/2 = PMT $36.25 PV $1,101.58 2) O'Brien Ltd.'s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9 and they sell at a price of $975. What is the bond's nominal coupon interest rate? YTM = Coupon Rate+ Fv-BV//FV+BV/2 0925/2 = x +1000-975/25*2//1000+975/2 .04625 = x+.5/987.5 X = 45.17 Coupon = 45.17/1000*2 Coupon Rate = 9.03% 3) A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to m will the price be 5 years from now? Par value Coupon rate N PV PMT FV I/YR PV $1,000 8.50% 25 $925 $85 $1,000 Value in 5 years: N I/YR PMT FV 20 9.28% $85 $1,000 9.28% $930.11 4) In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historica Corporation's balance sheet (book values) as of today is as follows: Long-term debt (bonds, at par) 23,500,000 Preferred stock 2,000,000 Common stock ($10 par) 10,000,000 Retained earnings 4,000,000 Total debt and equity $39,500,000 The bonds have a 7.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from toda below par. What is the current market value of the firm's debt (hint: bond price* numer of bond shares)? Calculate the price of each bond: Coupon rate Future Value = FV Yrs to maturity Periods/Yr Periods = Years 2 = N Going annual rate = rd= YTM Periodic rate = rd/2 = I/YR Coupon rate Par/2 = PMT Price of the bonds = PV 7.00% $1,000 10 2 20 11.00% 5.50% $35.00 $760.99 Determine the number of bonds: Book value on balance sheet Par value Number of bonds = Book value/Par value $23,500,000 $1,000 23,500 Calculate the market value of bonds: Mkt value = PV Number of bonds $17,883,320 par value of $1,000. The going interest rate (r d) is 6.20%, based on eir nominal yield to maturity is 9.25%, they pay interest semiannually, sells for $925. If the yield to maturity remains at its current rate, what SHOW ALL OF YOUR CALCULATION W ENOUGH EXPLNATION TO EARN FULL C POINTS. Bond valuation related problems shou solved by using a financial calculator or spreadsheet. Accordingly, you must sho values of all relevant time valu of mone as explained in the textbook or the lect Any solutions through bond price calcu available online will not earn any point As you know, there are many ways to c bond value and bond yield using excel spreadsheet. Price function or PV function can be use bond value. Yield function or Rate functi be used to find the yield, rd or kd (my lec notes). For this assignment, I recommend you function for bond value and Rate functi yield because they are much simpler th other methods. Why do we learn Price function and Yiel Because the functions are more flexible apply more complicate situation (e.g., w need to calculate bond value at a point o between coupon dates). But, our textbo cover that situation. ance sheet figures from historical book values to market values. KJM ature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell d shares)? LL OF YOUR CALCULATION WITH XPLNATION TO EARN FULL CREDIT uation related problems should be using a financial calculator or MS excel et. Accordingly, you must show the ll relevant time valu of money variables ed in the textbook or the lecture notes. ons through bond price calculators nline will not earn any points. now, there are many ways to calculate e and bond yield using excel et. tion or PV function can be used to find e. Yield function or Rate function could find the yield, rd or kd (my lecture signment, I recommend you to use PV or bond value and Rate functio for the use they are much simpler than the hods. e learn Price function and Yield function? e functions are more flexible enough to e complicate situation (e.g., when we lculate bond value at a point of time oupon dates). But, our textbook does not situation. A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The for $1,100. (Assume that the bond has just been issued.) Fill all grey colored cells. You must caclulate them using excel f so I can check how the numbers are obtained. Cell formula must refer to any relevant data in Input Section. 1) Fill the blank cells Basic Input Data: Years to maturity: Periods per year: Periods to maturity: Coupon rate: Par value: Periodic payment: Current price Call price: Years till callable: Note: All questions are related to each other. So, a wrong answer to a part of the problem would affect the answers to the rest of the problem. Therefore, you have to calculate the values in the cells by excel formula as needed. As long as your calculation process is correct, you would get full credit points. 20 2 40 8% $1,000 $40 $1,100 $1,040 5 Periods till callable: 10 2) What is the bond's yield to maturity? Peridodic YTM = Annualized Nominal YTM = 3.53% Hint: Rate function should be used 7.06% Hint: This is a nominal rate, not the effective rate. Nominal rates are generally quoted 3) What is the bond's current yield? Current yield = Ann. Coupon / price Current yield = $80 / $1,100 Current yield = 7.27% Hint: Write formula in words. Hint: Cell formulas should refer to Input Section