Questions 1 & 2 are to be done using Excel - Total Payment; Interest Payment and Principal Payment are to be calculated using the financial functions in excels.

Grades will assigned based on the use of these formulas

Question 3

The Plush Corporation is planning on expanding its operations and decides to fund this by issuing a new series of bonds on January 1, 2020. The 10% coupon bonds will be sold at par ($1 200), and will mature on December 31, 2044. Coupon payments are made semi-annually.

1. What will be the YTM of Plushs bonds on January 1, 2020? [2 marks]
2. What will be the price of the bond on January 1, 2027, given interest rates is expected to fall to 8%?

[5 marks]

3. Find the expected current yield and expected capital gains yield on the bond on January 1, 2027, given the price as determined in Part b above [6 marks]
4. If Plush Corporation bonds are expected to be sold for $1 100 on July 1, 2037, what is the expected rate of return on that date? [6 marks]
5. What would be expected current yield and expected capital gains yield on July 1, 2037? [6 marks]
6. Would you buy Plush bonds when they are selling for $1 100 if you require a rate of return of 13% per year. (Show calculations to support your answer) [10 marks]