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Bond Project FIN 445

This assignment covers bond valuation and investment strategies as part of a finance project.

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    Running head: FINANCE 1 Bond Project FIN 445 Name Institution BOND PROJECT FIN 445 [15 points] First, calculate the value of a corporate bond using the information below. Do this calculation by hand and show all of your work! Second, convert the value to price; round to 3 decimals. Settlement Date: 5/15/2016 Maturity Date: 5/15/2018 Coupon rate: 4.50% UST Yield: 2.25%

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    FINANCE 2 Spread (bps): 125 UST Yield = 𝐢 / 𝐹 Where C = Annual interest received F = Face value of the bond 0 . 0225 = 1 . 25 𝐡 𝐹 = 1 . 25 0 . 0225 𝐹 = 55 . 556 𝐡 = 𝐢 [ 1 βˆ’ ( 1 + π‘Ÿ ) βˆ’ 𝑛 ] π‘Ÿ + 𝐹 ( 1 + π‘Ÿ ) 𝑛 1 . 25 [ 1 βˆ’ ( 1 + 0 . 045 ) βˆ’ 2 ] 0 . 045 + 55 . 556 ( 1 + 0 . 045 ) 2 2 . 34 + 50 . 87 = 53 . 22 Yield to Maturity: Calculate from Above Information π‘Œ = 𝐢 + ( 𝐹 βˆ’ 𝐡 ) / 𝑛 ( 𝐹 + 𝐡 ) / 2 = 1 . 25 + ( 55 . 56 βˆ’ 53 . 22 ) / 2 ( 55 . 56 + 53 . 22 ) / 2

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    FINANCE 3 = 2 . 42 54 . 39 = 0 . 04 = 4% [15 points] Calculate on paper (a) the Macaulay duration and (b) the modified duration. Show all of your work. π‘€π‘Žπ‘π‘Žπ‘’π‘™π‘Žπ‘¦ π‘‘π‘’π‘Ÿπ‘Žπ‘‘π‘–π‘œπ‘› = βˆ‘ 𝑑 Γ— 𝐢 ( 1 Γ— π‘Œ ) 𝑑 + 𝑛 Γ— 𝑀 ( 1 + 𝑦 ) 𝑛 𝑛 𝑑 = 2 πΆπ‘’π‘Ÿπ‘Ÿπ‘’π‘›π‘‘ π‘π‘œπ‘›π‘‘ π‘π‘Ÿπ‘–π‘π‘’ = 2 Γ— 0 . 045 ( 1 Γ— 1 . 25 ) 2 + 2 Γ— 55 . 56 ( 1 + 1 . 25 ) 2 53 . 22 = 0 . 6 + 21 . 95 53 . 22 22 . 55 53 . 22 = 0 . 42

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