1. (Excel) Use the IRR function in Excel to calculate the YTM on the following two bonds.

a. 10 year 7% Annual Coupon bond with a price of 103.75 b. 15 year 5% Annual Coupon bond with a price of 92.25

2. (Excel) Value the following bonds given the Treasury Spot Curve below:

a. 5 year 3% Annual Coupon Treasury Bond b. 5 year 10% Annual Coupon Treasury Bond

r0,1 = 4.00% r0,2 = 4.75% r0,3 = 5.20% r0,4 = 5.65% r0,5 = 5.95%

3. Calculate the YTM on each of the two bonds in question #2. Comment on the effect of the Coupon Rate on the YTM.

4. Calculate the YTM on the Corporate Bond, the Spread or OAS and the Expected Return on the One Year Corporate Bond below based on the table of Cash Flows and Probabilities shown below. Comment on the difference between the Corporate Bond YTM and the Expected Return. .

Price Today Cash Flow

Risk Free Bond: ($100,000) $104,850 Corporate Bond: ($100,000) $105,500 97.5% probability of Strong Economy $90,000 2.5% probability of a Weak Economy