Running head: FINANCE 1 Bond Project FIN 445 Name Institution BOND PROJECT FIN 445 [15 points] First, calculate the value of a corporate bond using the information below. Do this calculation by hand and show all of your work! Second, convert the value to price; round to 3 decimals. Settlement Date: 5/15/2016 Maturity Date: 5/15/2018 Coupon rate: 4.50% UST Yield: 2.25% FINANCE 2 Spread (bps): 125 UST Yield = 𝐶 / 𝐹 Where C = Annual interest received F = Face value of the bond 0 . 0225 = 1 . 25 𝐵 𝐹 = 1 . 25 0 . 0225 𝐹 = 55 . 556 𝐵 = 𝐶 [ 1 − ( 1 + 𝑟 ) − 𝑛 ] 𝑟 + 𝐹 ( 1 + 𝑟 ) 𝑛 1 . 25 [ 1 − ( 1 + 0 . 045 ) − 2 ] 0 . 045 + 55 . 556 ( 1 + 0 . 045 ) 2 2 . 34 + 50 . 87 = 53 . 22 Yield to Maturity: Calculate from Above Information 𝑌 = 𝐶 + ( 𝐹 − 𝐵 ) / 𝑛 ( 𝐹 + 𝐵 ) / 2 = 1 . 25 + ( 55 . 56 − 53 . 22 ) / 2 ( 55 . 56 + 53 . 22 ) / 2 FINANCE 3 = 2 . 42 54 . 39 = 0 . 04 = 4% [15 points] Calculate on paper (a) the Macaulay duration and (b) the modified duration. Show all of your work. 𝑀𝑎𝑐𝑎𝑢𝑙𝑎𝑦 𝑑𝑢𝑟𝑎𝑡𝑖𝑜𝑛 = ∑ 𝑡 × 𝐶 ( 1 × 𝑌 ) 𝑡 + 𝑛 × 𝑀 ( 1 + 𝑦 ) 𝑛 𝑛 𝑡 = 2 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑏𝑜𝑛𝑑 𝑝𝑟𝑖𝑐𝑒 = 2 × 0 . 045 ( 1 × 1 . 25 ) 2 + 2 × 55 . 56 ( 1 + 1 . 25 ) 2 53 . 22 = 0 . 6 + 21 . 95 53 . 22 22 . 55 53 . 22 = 0 . 42