I need assistance with the attached two part assignment.
Thanks in advance for your time and assistance!!!
Part I: Bonds
To review the configuration of today's "yield curve" click on the following: http://www.bondsonline.com/Todays_Market/Treasury_Yield_Curve.php
A simple calculator of the yield to maturity of a bond can be found at the following site.
As an alternative you may use Excel spreadsheet in order to perform the computations. Here's an example showing how to do this.
1. Consider the following information on a series of government bonds as of this week. All bonds have a "face value' or maturity value of $1,000:
Bond No. Maturity Coupon Price Yield to Maturity
1 2 years $51 $992 ?
2 3 years $46 ? 5.52%
3 4 years $61 $1,015 ?
4 6 years $55 ? 5.82%
5 6 years $10 ? 5.81%
(a) Compute the yield to maturity on bonds no. 1 and 3, and the market price of bonds no. 2, 4 and 5 (the market price is actually the present value of the cash flow that a buyer of the bond receives, where the present value is computed using the yield to maturity that is given).
See excel file attached.
(d) Now assume that the Federal Reserve Banks lowered interest rates and that as a results the yield to maturity on all of these bonds fell by one half of a percentage point. (This means from 5.54% to 5.04%, and from 5.80% to 5.30% etc.). Compute the new ...
This explains the steps of valuation of Bond and stock with appropriate examples