For purposes of this exercise, assume that UPS issues a new ten-year bond for $100,000 (Face...

For purposes of this exercise, assume that UPS issues a new ten-year bond for $100,000 (Face Value) that will mature in 2027 (10-Years). The Future Value of this bond is therefore $100,000. The bond was issued in December 2017 at a market interest rate of 5.0% fixed for 10 years, with interest payments made semi-annually (Note: The payment never changes even if the original rate of 5% increases or decrease). What is the Present Value of this bond using the three scenarios in

Part II: Bond Issuance.

Note: The PMT of interest remains constant at 5% semannually in dollars. The Interest Rate of 5% annually is what increases by 2% annually in Q1. and decreases by 2% annually in Q2.

PART II: BOND ISSUANCE
	Newly issued 10-year bond		Calculate the Present Value in the three scenarios below
Present Value at Issuance
	Present Value	PV
	Periods	N		Semi-annual payment: 2017-2027
	Interest	I		Interest paid semi-annually
	Payments	PMT		This bond make regular semi-annual payments of interest (entered in $ dollars semiannually).
	Future Value	FV		Future Value in 10 years = Bonds Original Face Value

1. The new value of the bond if overall rates in the market increased by 2%

	Present Value	PV
	Periods	N		Semi-annual payment: 2017-2027
	Interest	I		Please adjust interest
	Payments	PMT		This bond make regular semi-annual payments of interest (entered in $ dollars semiannually).
	Future Value	FV		Future Value in 10 years = Bonds Original Face Value


2. The new value of the bond if overall rates in the market decreased by 2%

	Present Value	PV
	Periods	N		Semi-annual payment: 2017-2027
	Interest	I		Please adjust interest
	Payments	PMT		This bond make regular semi-annual payments of interest (entered in $ dollars semiannually)
	Future Value	FV		Future Value in 10 years = Bonds Original Face Value

Expert Solution

jeff jeffy answered 1 year ago

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