Reference no: EM132025511

[Numerical Exercise] Suppose that a firm’s bond have face value of $1000, coupon payment of $100 paid annually, and the maturity of T years. Market’s required return is 10%. (a) Using software of your choice (most likely Excel), calculate and plot the present discounted values of the 1) face value, 2) total coupon payments, and 3) total value of the bond in the same plane by varying T. Let T ? {1, 2, . . . , 49, 50}. Make sure to plot the present discounted values in the vertical axis and maturity T in the horizontal one. You only need to print out one final figure that has three graphs on the same plane. Indicate clearly what each of the three graphs represent. DO NOT draw the figure by hand. (If the figure is drawn by hand, you get 0 points.) Attach a printed copy of the figure generated from the computer. Also, no need to print out the actual values used to graph these. I only need to see the final graph. (b) Using software of your choice (most likely Excel), calculate and plot the total value of the bond as market’s required return varies. Specifically, let the required return be one of the following five: 6%, 8%, 10%, 12%, and 14%. Let T ? {1, 2, . . . , 49, 50}. Make sure to plot the present discounted total value of the bond in the vertical axis and maturity T in the horizontal one. You only need to print out one final figure that has five graphs on the same plane, in which each graph represents one of the five possible required return. Indicate clearly which required return each of the five graphs represent. DO NOT draw the figure by hand. (If the figure is drawn by hand, you get 0 points.) Attach a printed copy of the figure generated from the computer. Also, no need to print out the actual values used to graph these. I only need to see the final graph. [Hint: You already calculated the total value of the bond when required return is 10% in Part (a). Basically, you need to calculate the total value for four other possibilities of required return.] (c) Now, let T = 20. Using software of your choice, plot in one graph the total value of the bond as market’s required return varies. Specifically, use the following required returns (YTM): 4%, 5%, . . . , 15%, 16%. Make sure to plot the present discounted total value of the bond in the vertical axis and YTM in the horizontal one. You only need to print out one final figure that has only one graph. DO NOT draw the figure by hand. (If the figure is drawn by hand, you get 0 points.) Attach a printed copy of the figure generated from the computer. Also, no need to print out the actual values used to graph these. I only need to see the final graph. What is the relationship between bond prices (values) and the YTM’s? Can anyone help with this please?