Title: Bond Valuation

Contents

Part A: Introduction: Bond Valuation

Part B: Questions

1. Bond A-Characteristics—Coupon Payment is $200 a year (1 payment per year), 10 year maturity, pays, $2000 at maturity, Coupon Rate of 10% is also the current interest rate.

What is it worth today?

2. Bond B- Characteristics—Same as Bond A, except the current interest rate is 4%. What is it worth today?

3. If you had your choice of Bond A or Bond B as a gift to you—with the understanding that you would hold the Bond until maturity in 10 years, which one would you choose? Please explain your answer.

4. If you had a choice of Bond A or Bond B AND you could either hold the bond you select to maturity as did in situation 3 or you could sell the bond you choose today and the transaction fee is $50. Which bond would you choose or would it make any difference to you?

5. If you felt that in 3 months when Mr. Greenspan holds his next meeting that the fed rate would be increased by 3% and that other rates would also increase AND YOU OWNED BOND B,--WHAT WOULD YOU BE THINKING ABOUT DOING?

Number of words: 699 inclusive of the above questions