An annual has 15 years to maturity. It has a coupon rate of 5%, a YTM of 8%. Fill in the cells highlighted in yellow, and aswer the questions in the D2L Quiz. You will have 4 attempts to complete this quiz. To start with, assume that interest rates in the market just increased by 2% (this change is entered in cell B28). Hint: Do not enter any numbers manually in any of the cells; always refer to another cell where the number is entered. For example, instead of typing 5% manually, refer to cell B1.

Market value at 8% YTM  $ 743.2156

at 10% YTM                       $ 619.6960

Explanation:

Assuming the face value is 1,000 as common outstanding American company's bonds:

Market value under the current scenario:

Present value of the coupon payment:

Coupon: $1,000 x 5% =  50

time15 years

rate0.08

PV$427.9739

Present Value of the Maturity

Maturity   1,000.00

time   15.00

rate  0.08

PV   315.24

PV c$427.9739

PV m  $315.2417

Total$743.2156

If the interest rate in the market increaseby 2% then investor will only trade the bonds to get a yield 2% higher that is 10% so we recalculate the new price:

C50.000

time15

rate0.1

PV$380.3040

Maturity   1,000.00

time   15.00

rate  0.1

PV   239.39

PV c$380.3040

PV m  $239.3920

Total$619.6960

Giving a lower price than before