Please use the Fidelity site, https://www.fidelity.com

Set CALCULATE: Price, BOND TYPE: Corporate, YIELD-TO-MATURITY: 5 percent, ANNUAL COUPON RATE: 5 percent, COUPON FREQUENCY: Annual, MATURITY DATE: Todays Date with the year set to 4 years from now. (i.e. If today is July 21, 2019, then it should be July 21, 2023), PAR VALUE: $1000.00, QUANTITY: 1, SETTLEMENT DATE: Today's date (i.e. July 21, 2019).

1. Click Calculate and see the graph and other information on the right of the calculator. What is the Invoice Price, Accrued Interest, Purchase Price, Yield-to-Maturity? Do we have a discount, premium, or par bond here? Why? What is the difference between the purchase price and the invoice price?

2. Compute the price of this same bond using our formula from the textbook. (Formula that computes the present value of future cash flows of the bond, using the yield-to-maturity as the discount rate? Did you find the same price as Fidelitys calculator? Please write down the formula and the result you obtained and explain briefly.

3. Now change the settlement date to tomorrow. (implies that the transaction takes place tomorrow.) Explain what happened to the Purchase Price, Invoice Price, and Accrued Interest. How is the accrued interest is calculated? Why do we have the same purchase price but a different invoice price?

4. Now go back to the calculator and change the yield-to-maturity (YTM) to 6 percent and note the new information. Do we have a discount, premium, or par bond here? Why?

5. Change the YTM to 4 percent. Do we have a discount, premium, or par bond here? Why?

6. Compare the difference in prices of the bond with YTM 4% and 6%. Are they symmetric around $1000? Explain.

7. Just change the COUPON FREQUENCY to Semi-Annual and see if the price of the bond changes and compute the same using textbook formula and see if the price changes?Explain why we have a difference in results?

8. In the light of the above exercise, can we say that prices of bonds are equally sensitive to the same percentage increases or decreases of the market interest rate (YTM)? Explain. (i.e. Market interest rate increases, say, from 5% to 6% or decreases from 5% to 4%)

9. In the light of what we learned in this activity, please explain the impact of coupon amounts (say $30 coupon vs. $$85 coupon) on the interest rate sensitivity of a bond. In other words, if the market interest rate changes, which bond's price will change more, the one with the low or high coupon? (assuming other things are identical.)

10. In the light of the above exercise, what is the relationship between the time to maturity and interest rate sensitivity of bonds, other things held constant?