Part b

In Feb2018, Amazon raised US$3.5bn by issuing 10-year bonds carrying annual coupon of 3.15%. The face value of the bond is $1000 and the coupon is paid every six months.

i. If the bond yield at the time of issue was 3.5%, what would be the price of the bond at the time of issue? (10 marks)

ii. If the bond yield at the time of issue was 3.0%, what would be the price of the bond at the time of issue? (10 marks)

iii. It is said that the price of a bond is inversely proportional to the prevailing interest rates. Prove this statement by taking the case of the above bond and computing the price of the bond at the above two yields (3.0%, and 3.5%) for different times from maturity. You may compute the bond prices at 5 years, 2 years, 1 year, and at maturity. (20 marks)

iv. What would be the price of the bond immediately before the payment of the final coupon (compute for both bond yields)? (10 marks)

v. What would be the price of the bond immediately after the payment of the final coupon (compute for both bond yields)? (10 marks)

Part c:

Note down price of FaceBook Inc. dated 1st November, and then note down price of FaceBook dated 28th Feb. Calculate holding period return for FaceBook for given time period. Now research internet to get risk-free rate of return, market return and beta for FaceBook. Appropriately refer all information and give reasons for selecting this data. Then calculate value of value of FaceBook using CAPM Model. (20 Marks)