COMM121-221 assignment 3 d2l PDF

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QUEEN’S SCHOOL OF BUSINESS COMM 121—INTRODUCTION TO FINANCE INDIVIDUAL ASSIGNMENT 3 Note that you are not allowed to collaborate for this assignment. Please ensure that you include your Name, ID, Course (Comm 121/221) and section

1. Gotham City has been planning to develop a new warning system to make Batman aware of danger. The installation of the system costs more than what their budget allows so the mayor decide to issue a 15-year bond to finance the project. The bonds have a face value of $1,000 and it promises a coupon rate of 6.8% which will be paid quarterly to the bond holders. a. Calculate the price you have to pay to purchase the bond if i. The Yield to Maturity (YTM) is 6% (annually) ii. The Yield to Maturity (YTM) is 8.4% (annually) b. Let’s assume you would like to buy 200 bonds issued by the Gotham City. If the YTM is 7.6% and the coupon rate is 6.8%, calculate how much more you have to pay when you purchase a bond which makes annual coupon payments rather than quarterly.

2. Consider the following three zero-coupon (discount) bonds: Bond

Face Value

Time to Maturity

Market Price

1

$1,000

One year

$924.64

2

$1,000

Two years

$841.53

3

$1,000

Three years

$744.59

a) Calculate the one-, two-, and three-year spot rates. b) Calculate the forward rate over the second year and the forward rate over the third year....