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solution

Solve the following THREE questions by using the excel sheet on your computer, then copy the tables which you created and paste them on a word document. Print your word document and submit your results on the submission date.

Question One: If a bond pays $1500 in one year and $2500 in two years, its present value is $2800. Find the interest ratewhich equates the price of the bonds with the future values discounted. Use in your experiment 10 interest rates (hint: start your calculation from interest rate =20% to 30%).

Question Two: Find the pricesof a 10% coupon bond with a face value of $4000 on the following yield to maturities: 0.12, 0.11, 0.10, 0.09, and 0.08, and 4 yearsto maturity. Calculate the interest rateat each price. Further, write down the formulaof the present value for this question.

Question Three: based on your results in questions 1 and 2 (2 points) 1) Write down the formula of the present value for questions 1 and 2.
– What is the relationship between the interest rate and the price of the bond?
– What is the relationship between yield to maturity and interest rate in question 2?

Solution:

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