IP4homework

Task Type:Individual Project Deliverable Length:Word document of 700–1,000 words with attached Excel spreadsheet showing calculations
Points Possible:150 Due Date:6/16/2014 11:59:59 PM CT

Weekly tasks or assignments (Individual or Group Projects) will be dueby Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.

Key Assignment Draft

After engaging in a dialogue with your colleagues on valuation, you will now be given an opportunity to apply principles that were presented in this Phase. Using a Web site that provides current bond pricing and yield information, you will complete and analyze the tables illustrated below. Your mentor suggests using a Web site similar tothis one.

To fill out the first table, you will need to select 3 bonds with maturities between 10 and 20 years with bond ratings of "A to AAA," "B to BBB" and "C to CC." All of these bonds will have these values (future values) of $1,000. You will need to use a coupon rate of the bond times the face value to calculate the annual coupon payment. You should subtract the maturity date from the current year to determine the time to maturity. The Web site should provide you with the yield to maturity and the current quote for the bond. (Be sure to multiply the bond quote by 10 to get the current market value.) You will then need to indicate whether the bond is currently trading at a discount, premium, or par.

To complete the second table, you can use most of the data you included in your first table, except now you will add 1% to the yield to maturity and recalculate the market value (present value) of the bond and indicate whether it would trade at a discount, premium, or par.

In the third table, you will follow the same steps as in the second table, except you will now subtract 1% from the yield to maturity, recalculate the market value (present value) of the bond, and indicate whether it would be trading at a discount, premium, or par.

After completing the three tables, explain your findings and why your calculations coincide with the principles related to bonds that were presented in the Phase. Be sure to address the following:

· Explain the relationship observed between ratings and yield to maturity.

· Explain the relationship observed as yield to maturity (required rate of return) increased by 1%.

· Explain the relationship observed as the yield to maturity (required rate of return) decreased by 1%.

· Explain why it should have been predictable based on a coupon rate and the yield to maturity why the bonds would trade at a discount, premium, or par.

· Based on the material you learn in this Phase, what would you expect to happen to the yield to maturity and market value of the bonds if the time to maturity was increased or decreased by 5 years?

Be sure to document your paper with in-text citations, credible sources and a list of references used in proper APA format.

Reference

Bond finance. (n.d.). Retrieved from the Yahoo! Finance Web site: http://screener.finance.yahoo.com/bonds.html