Assessment Instructions

Respond to the questions and complete the problems.

Questions
In a Word document, respond to the following. Number your responses 14.

1. Explain what a call provision enables bond issuers to do. Why would bond issuers
exercise a call provision?
2. Define a discount bond and a premium bond. Provide examples of each.
3. Describe the relationship between interest rates and bond prices.
4. Describe the differences between a coupon bond and a zero coupon bond.
Use references to support your responses as needed. Be sure to cite all references using
correct APA style. Your responses should be free of grammar and spelling errors,
demonstrating strong written communication skills.

Problems
In either a Word document or Excel spreadsheet, complete the following problems.

You may solve the problems algebraically, or you may use a financial calculator or an
Excel spreadsheet.
If you choose to solve the problems algebraically, be sure to show your computations.
If you use a financial calculator, show your input values.
If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the
supporting work leading to your solution to receive credit for your answer.

Compute the following:

1. Assuming semi-annual compounding, what is the price of a zero coupon bond that
matures in 3 years if the market interest rate is 5.5 percent? Assume par value is
$1000.
2. Using semi-annual compounding, what is the price of a 5 percent coupon bond with 10
years left to maturity and a market interest rate of 7.2 percent? Assume that interest
payments are paid semi-annually and that par value is $1000.
3. Using semi-annual compounding, what is the yield to maturity on a 4.65 percent
coupon bond with 18 years left to maturity that is offered for sale at $1,025.95?
Assume par value is $1000.
Grading guidelines:

Analyzes what a call provision enables bond issuers to do and connects the analysis to relevant
real-world situations.

Analyzes why bond issuers would exercise a call provision and connects the analysis to relevant
real-world situations.

Defines a discount bond and a premium bond and connects the definitions to relevant real-world
examples.

Analyzes the relationship between interest rates and bond prices and connects the analysis to
relevant real-world situations.

Analyzes the differences between a coupon bond and a zero coupon bond and connects the
analysis to relevant real-world situations.

Calculates the price of a zero coupon bond and explains the calculation.

Calculates the price of a coupon bond and explains the calculation.

Calculates the yield to maturity on a coupon bond and explains the calculation.