Financial Management Problem

FN 215 – Financial Management

Problem Set # 7

Rules for all problem sets:

·         Do your own work.  Do not copy material from others.

·         Problem sets must be submitted in hard copy form.  Do not submit electronically.

Answer all 5 questions.

Question 1

You are analyzing a bond with the following characteristics.

Par value $1,500                     Annual coupon 4.95%, interest payable annually

Yield-to-maturity 7.50% annually

Bond was issued 3 years ago; it matures 17 years from today.

Calculate this bond’s current price using the calculator method.  If you use a financial calculator, show keystrokes.  If you use a regular calculator, show the equations.  Round to nearest dollar.

Question 2

From Question 1, solve using Excel. Round to nearest penny.  Report the amount in good form (i.e., appropriate dollar sign and cents).  You must print out Excel spreadsheet results and formulas.

Question 3

Recalculate the bond price from Question 1 data, but interest is payable monthly.  Use Excel method ONLY.  Round to nearest penny.  Report the amount in good form. Again, print out Excel spreadsheet results and formulas.

Question 4

Is the bond in Question 1 priced at premium or discount?  Explain.

Question 5

Using Excel ONLY, determine “present values” for each of the following problems.  Attach print-out with answers in good form and the formulas. Round to nearest dollar.

A.    $1.0 million per year; cash flows at beginning of the year; discount rate 4.5%, 20 years

B.     $25,000 received at the end of Year 30, discount rate 3.25%

C.     $50,000 per year for 10 years; $200,000 cash flow at the end of 10 years; discount rate 6.4%