1. Pick current business or economic news related to Business cycles and implications on Bonds and Bond funds In reference to bonds; what is credit risk and what is interest rate risk? Which are ri

1. Pick current business or economic news related to Business cycles and implications on Bonds and Bond funds In reference to bonds; what is credit risk and what is interest rate risk? Which are ri
Week 4 Assignment (100 points) Learning Outcome: Fundamentals of Bonds Describe following for Bonds : ( 10 points) coupon rate current yield Yield to maturity Which ones of the above rates/yield can change over the life of the bond and if yes, why? ( 10 points) Research and find a bond for large blue chip company like McDonald, Intel, GE or any other from Dow Jones 30 list. Provide following ( and list source) ( 20 points) Bond information : Company, rating Maturity date Current price Coupon rate % Current yield % Yield to Maturity (YTM) if overall interest rates in the economy start to go up, what will happen to the price of the bonds? Explain? ( 10 points) What is a callable bond and in what type of interest environment would the lenders exercise the call option on the bond and why? ( 10 points) EXCEL EXCERCISES: Calculate Bond price : ( 10 points) Par Value : $ 1000 Coupon rate : 3 % ( paid annually) Yield to maturity rate (YTM) : 5 % Time to maturity 10 years Calculate Bond price : ( 10 points) In reference to problem above, If borrower (corporation) has financial issues and the company gets downgraded by rating agencies (like Moody’s or Fitch) and the YTM goes up to 6 %. Calculate the price of the bond with this higher risk situation ( hence higher YTM) Calculate expected rate ( Yield to maturity) : ( 10 points) Bond Price : 900 N= 10 years Coupon rate : 6 % ( Annual payments) Par Value : 1000 YTM: ? ( Hint Use “RATE” from Excel financial formulas)