How would the price of the bond be affected by a change in the going market interest rate?
Chapter 5/Spreadsheet Problem 5-24 (pg. 237-8)
This bond is 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 bond sells for $1,100. (Assume that the bond has been issued.) Please complete the partial model. You need the following to be answered.
What is the bond’s yield to maturity?
What is the bond’s current yield?
What is the bond’s capital gain or loss yield?
What is the bond’s yield to call?
How would the price of the bond be affected by a change in the going market interest rate? (Hit: Conduct a sensitivity analysis of price to changes in the going market rate for the bond. Assume the bond will be called if and only if the going rate of interest falls below the coupon rate. This is an oversimplification, but assume it for the purpose of this problem.)
Now assume the date is October 25, 2020. Assume further that a 12%, 10-year bond was issued on July 1, 2020, pays interest semiannually (on January 1 and July 1), and sells for $1,000. Use the attached spreadsheet to find the bond’s yield.
Requirements of the assignment:
Paper. Write a Paper to answer the Questions and explain your calculation results in the paper (not the actual calcuations), attaching the Excel workbook as an Appendix with the detailed calculations, referrinfg to the calculation details in your paper by referencing the Appendix page in the Excel Workbook.
APA. All papers must follow all APA requirements. (10% deduction if not). See APA 7th edition for using Appendices for your Excel workbook.
Length. The paper is to be 2-page minimum/3-page maximum (not including title and references page).
Title page and reference page are required. However, they do not count towards any page count.
Analysis. Writing should reflect an understanding of the chapter’s basic concepts, thorough research, and logic and critical thinking skills.
References/Citations. You must include scholarly sources as references and citations. At a minimum you must include the textbook as a reference. And any reference listed must be used and cited in your paper. You need to provide citations for all instances where you use information/thoughts from outside knowledge, even if not quoted. Citations are required and need to be included and tied to all references. Not providing references and citations can be an issue of academic integrity if attribution not provided for insights gained from outside sources. This also significantly impacts the grade on content, since authority of analysis is limited. See APA 7th edition for more details. In addition to the citations, remember that quoted material must always have a citation with page #.
Introduction. The introduction is attention getting with sufficient background information to establish the topic and a clear thesis statement. The introduction presents the background to your study, introduces your topic and aims, and gives an overview of the paper.
Conclusion. The conclusion summarizes the main points and leaves the reader with a strong comprehension of the paper’s significance and the author’s understanding. The conclusion is intended to help the reader understand why your research should matter to them after they have finished reading the paper; a synthesis of key points and finding you want the reader to take way from your analysis.
Writing mechanics. Grammatically correct – No spelling, grammar, or mechanics errors.
Excel. Excel workbook can either be copy/pasted into your paper AFTER the references page as an Appendix or submitted as a separate document along with your paper Word document when submitting the assignment.