1.Pick current business or economic news related to Business cycles and implications on Bonds and Bond funds
a. : In reference to bonds; what is credit risk and what is interest rate risk? Which are riskier; “investment grade bonds” or “High yield bonds”?
please address both topics . Discuss the topic via proving examples (via text book reading and research)…provide evidence
2-3 pages with references
2 answer this :
1. Describe following for Bonds :
a. coupon rateb. current yieldc. Yield to maturity
2. Which ones of the above rates/yield can change over the life of the bond and if yes, why?
3. 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)
a. Bond information : Company, ratingb. Maturity datec. Current priced. Coupon rate %e. Current yield %f. Yield to Maturity (YTM)
4. if overall interest rates in the economy start to go up, what will happen to the price of the bonds? Explain? ( 10 points)
5. 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)
6. Calculate Bond price : ( 10 points)• Par Value : $ 1000• Coupon rate : 3 % ( paid annually) • Yield to maturity rate (YTM) : 5 %• Time to maturity 10 years
7. Calculate Bond price : ( 10 points) a. 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)
8. 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)