Cases in Healthcare Finance Case 14 problem 4e

Cases in Healthcare Finance Case 14 problem 4e

4-Consider the riskiness of the three bond with a Face amount of bond is $1000 Annual Coupon Rate is 10% Maturity Date is 5 years. (Use excel for work, please)

e- Assume that you plan to keep your money invested, and to reinvest all intrest receipts, for five years, furthermore, assume you bought the five year bond for $800, and interest rates suddenly fell to 5 percent and remained at that level for five years.

(1) Set up a timeline that can be used to calculate the actual rate of return on the bond (Hint each interest receipt must be compounded to the maturity date at the reinvestment rate and then summed , along with the maturity value. then , the rate of return that equates this terminal value to the inital price of the bond is the bond’s realized rate of return) How dose your answer compare with the bond’s YTM?

(2) What if interst rates had risen to 15 % rather than fallen to 5 %?

(3) How would the result have differed if you had bought the 25 year bond rather than the 5-year bond?

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