Suppose you had two bonds: a zero and a coupon bond both due in 15 with 6% yield. The coupon yield is 5%, and it is callable at par in 10. What are the values of these bonds in the market today?

What are the new yields and values of these bonds if it is two years later and yields have dropped .25%?

Suppose you have $100,000 you want to invest for 13 years. You buy zeros from part 3.B to protect your all of the principal. And how much will you be able to invest in an equity fund for the same period that yields 8% annually. What will be the FV of the whole $100,000 when the zero matures? See next page for staged questions to answer.

	Zero	Coupon Bond	Call Feature
N
I
PV
PMT
FV

B.

	Zero	Coupon Bond	Call Feature
N
I
PV
PMT
FV

(C) INITIALLY:

How many zeros are purchased to protect the $100k principal: ___________

What is the amount invested in the equity fund: ____________

What is the percent of Debt as an asset to Equity as an asset initially: ______D ________E

FINALLY:

What is the value of all the zeros: ______________

What is the value of the equity Fund: ______________

	Zero	Coupon Bond	Call Feature
N
I
PV
PMT
FV
	Zero	Coupon Bond	Call Feature
N
I
PV
PMT
FV

What is the percent of Debt as an asset to Equity as an asset FINALLY: ______D ________E