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Class 6 Chapter 5 Basics of Bonds Class discussion

Class 6 Chapter 5 Basics of Bonds Class discussion - Class...

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Class 6 Chapter 5 Basics of Bonds Class Discussion Do all calculations below on the basis of par value = 100. In class activity: 1) For a 10 year bond at par value with a coupon rate of 5% and y-t-m of 5% for the life of the bond: i) Calculate the pv of the face value; separately calculate the pv of coupon pmts at time of issue. ii) Calculate the same two values after 3 years have lapsed. iii) Calculate the same two values after 8 yrs have lapsed iv) List the assumption you have consistently made v) What conclusion can you make about bond price relative to par value? vi) Sketch the value path over the 10 years for the pv of the face value vii) Sketch the value path over the 10 years for the pv of the coupon pmts. 2) Do the above for this bond with coupon rate > market rate. a. What does this tell you about investing in Bonds 3) Do the above for this bond with the coupon rate < market rate. a. What does this tell you about investing in Bonds 4)
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