FIN620 CH 4 MINI-CASES

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?