Homework #3: Bond Valuation

1.A bond has a face value (principal) of $1,000. It pays interest annually with a coupon rate of 4%, and its maturity (term) is 10 years. Write out the equations and any assumptions behind your answers.

A.[10 points] What is the interest payment each year?

B.[10] Write out the equation for the bonds market value (price)

==1?$?(11+%)?=_(t=1)^?$?(1/(1+YTM%))^?+ $? (11+%)?(1/(1+YTM%))^?

C.[20] What is the price of the bond at the end of year 4 if the YTM is 6%?

D.[20] What is the price of the bond at the end of year 5 if the YTM is 7%?

E.[20] What is the rate of return for holding the bond from year 4 to year 5 (from C and D above)? Hint: you buy the bond at the end of year 4 and sell it at the end of year 5.

F.[20] If you pay $500 to buy the bond at the end of year 5 (based on the price in D), how much is the interest payment you should receive at the end of year 6?

please use the excel spreadsheet and give out the right formula for the calculation and please explain clearly in how you get the answer