BUS FP3062 Capella University Valuation of Bonds Questions

• Competency 2: Define finance terminology and its application within the business environment.
  • Define a discount bond and a premium bond.
  • Describe the relationship between interest rates and bond prices.
  • Describe the differences between a coupon bond and a zero coupon bond.
  • Calculate the yield to maturity on a coupon bond.
  • Calculate the price of a zero coupon bond.
  • Calculate the price of a coupon bond.
• Competency 3: Evaluate the financial health of an organization.
  • Explain what a call provision enables bond issuers to do.
  • Explain why bond issuers would exercise a call provision.

Competency Map

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Resources

SUGGESTED RESOURCES

The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.

Library Resources

The following e-books or articles from the Capella University Library are linked directly in this course:

• Weaver, S. C., & Weston, J. F. (2001). Finance and accounting for nonfinancial managers. New York, NY: McGraw-Hill.
• Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: American Management Association.

SHOW LESS

Course Library Guide

A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3062 – Fundamentals of Finance Library Guide to help direct your research.

Other Resources

• Cornett, M., Adair, T., & Nofsinger, J. (2019). M: Finance (4th ed.). New York, NY: McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link.

Assessment Instructions

Respond to the questions and complete the problems.

QUESTIONS

In a Word document, respond to the following. Number your responses 1–4.

1. Explain what a call provision enables bond issuers to do. Why would bond issuers exercise a call provision?
2. Define a discount bond and a premium bond. Provide examples of each.
3. Describe the relationship between interest rates and bond prices.
4. Describe the differences between a coupon bond and a zero coupon bond.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

PROBLEMS

In either a Word document or Excel spreadsheet, complete the following problems.

• You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
• If you choose to solve the problems algebraically, be sure to show your computations.
• If you use a financial calculator, show your input values.
• If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.Compute the following:

1. Assuming semi-annual compounding, what is the price of a zero coupon bond that matures in 3 years if the market interest rate is 5.5 percent? Assume par value is $1000.
2. Using semi-annual compounding, what is the price of a 5 percent coupon bond with 10 years left to maturity and a market interest rate of 7.2 percent? Assume that interest payments are paid semi-annually and that par value is $1000.
3. Using semi-annual compounding, what is the yield to maturity on a 4.65 percent coupon bond with 18 years left to maturity that is offered for sale at $1,025.95? Assume par value is $1000.