You may work with one partner. (Submit one document per team (pair))
5. What is the rate of capital gain (g) if both bonds sell for $900.00 in one year?
a. Bond #1 selling for $950.00 today?
b. Bond #2 selling for $860.00 today?
6. What would the return (R) on each bond if the firm sold both bonds after one year
for $900.00 each?
a. Bond #1 selling for $950.00 today?
b. Bond #2 selling for $860.00 today?
7. Go back to the table, if the yield to maturity expected by investors changes to 11%:
a. What will be the market prices of Bond #1 and Bond #2, respectively?
Bond 1 Bond 2
b. What will be the dollar change in prices for Bond #1 and Bond #2,
respectively?
Bond 1 Bond 2
c. What will be the percent changes in price for Bond #1 and Bond #2,
respectively?
Bond 1 Bond 2
d. Since the expected yield to maturity is the same, why is it the case that the
amount of change in price is different between the bonds?