Consider a five-year semi-annual bond issue by Financial Institution
"OMEGA" of Oakland California. The Face value of the bond is $1,000
dollars, the coupon rate of the bond is 12% and the ongoing market interest
rate is 12%. Calculate the value of the bond, USING THE TIMELINE
APPROACH, the Current Yield, the Yield to Maturity and the Capital Gains
Yield respectively.
b. Economic conditions change in the country and the ongoing rate of interest
increases to 14%. Calculate the value of the bond, USING THE TIMELINE
APPROACH, the Current Yield, the Yield to Maturity and the Capital Gains
Yield respectively.
c. A new President is elected, and the discount rate drops to 8%. Calculate
the new value of the bond, USING THE TIMELINE APPROACH, the
Current Yield, the Yield to Maturity and the Capital Gains Yield respectively.
d. Carefully draw the Bond Path over the five-year period and properly
explain your answers