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Business School Problem 1: (15 points) Compute the prices and yields of the following bonds Issuer Volkswagen JP Morgan Renaut TodayT Settlement Coupon rate Frequency coupon Today Today 2.75% 2.25% 0% payment Term to Maturity Face value Yield to Maturity Price Current Yield AnnualSemi-annual Zero-coupon 2 years 20 years 5 years $1,000 3.4% E100 100 5.0% 4.2% Problem 2: (20 points) Suppose you hold a 6.5 percent coupon bond with a par value of $100 that matures in 14 years and pays semi-annual coupons. 1) If currently, the bond is priced to offer a yield to maturity of 7.2 percent, what is its current selling price? 2) You believe that in one year, the yield to maturity will be 6.8 percent. a. Will the bond price increase or decrease from its current market value? Explain why. (No Calculations required) b. Will the price be higher or lower than $100? Explain why. (No calculations required). If you hold the bond for the entire year and the change in yield to maturity occurs, what would be your total return in dollars and percentage? 3) www.eu

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Answer to Q#1 (First question in the list Volkswagon 5.0% 2 2.75 JP Morgan 1.7% 40 11.25 Renault 4.2% [JP Morgan 3.4%/2-1.796] Yield to Maturity, RATE # of Years to maturity, NPER Annual coupon payment, PMT Maturity value at the end, FV Annual coupon type, TYPE a) Value of the bond € 0.00 [Volkswagon-100x2. 7596-$2.75; JP Morgan-1,000x 2.25%/2-1125] 100.00 1,000.00 100.00 [Face value of the bond] 0 0 0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period 95.82 . 834.10 81.41 [Ref: NOTE 2.70% 0.00% [Volkswagon-2.75/95.82-2.87%; JP Morgan-11.25/834.10.1.35%x2-2.70%) b) Bonds Current Yield [Coupon payment/ Bonds current price; but for JP Morgan, the result shall be multiplied by 2 to convert it into annual Current Yield] 2.87%NOTE For Volkswagon: Value of the bond is calculated using EXCEL FUNCTION PV rate, nper pmt fv type where rate-5.0%; nper-2; pmt are negative as they denote cash inflows; type 0 because cash flows occur at the end of each year only 2.75; fv=-100, type-o Here, value for pmt & fv For JP Morgan: Value of the bond is calculated using EXCEL FUNCTION PV rate, nper pmt,fv type where rate-1.7%; nper-40, pmt-11.25; fV-1000, type:0; Here, value for pmt & fv are negative as they denote cash inflows; type 0 because cash flows occur at the end of each year only For Renault: Value of the bond is calculated using EXCEL FUNCTION PV(rate,nper,pmt,fv,type) where rate-4.2%; nper:5; pmt-0; fv--100, type:0; Here, value for fv is negative as it denotes cash inflow; type 0 because interest compounds at the end of each year only Volkswagon 5.096 Renault 2 Yield to Maturity, RATE 3 # of Years to maturity, NPER 4.296 [JP Morganz 3496/2-1.7%) Annual coupon payment, PMT 5 Maturity value at the end, FV 6Annual coupon type, TYPE 7 a) Value of the bond 3.46/2 20 2 -C5*2.25%/2 1,000.00 0 :85*2.7596 100.00 €0.00 [Volkswagon-100x2.75%-$2.75:JP Morgans],000x2.2596/2s]1.25] 100.00 Face value of the bond) 0-0 if coupons paid at the end of each period; 1 if coupons paid at the beginning of each period. PV(B2,83,-B4,-BS,B6)PV(C2,C3,-CA,-CS,C6)PV(D2,D3,-D4,-D5,D6) [Ref: NOTE 9 b) Bonds Current Yield -B4/B7 -CA/C7 2 -D4/D7 Volkswagon-2.75/95.82.2.87%; JPMorgana 11.25/834. 10. 1.35%x2-2.70%)

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