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 ar

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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)

EXCEL EXCERCISES:

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)

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