Dorina Marciano BSA501 05 Task Performance 2

I. Participants in the Bond Market

1. Commercial Banks – These banks participates in the bond market by purchasing
bonds and selling them through the secondary market. This is one of their functions
as a bank since they focus on the lending and investing.
2. Mutual Funds – For mutual funds, they are able to use that their investors give
them and disperse the investments to different types of long-term investments.
3. Investment Banking Firms – These firms have the same rights as to other
companies in placing their investments through bonds
4. Insurance Companies – These companies or player in the bond market may include
or promote to their buyers the highlights of investing.

II. Bond Valuation

1. 1,000 corporate bonds

5% per annum interest rate
2 yrs semi-annual payments
3% YTM

I =M × Nominal Interest Rate

I =P 1,000× 5 %
I =P 5 0

a. PV of Coupon Payments
PV A= I × ¿
PV A= P 50/2× ¿
PV A= P 25× 2.3616
PV A= P 59.04

b. PV of the bond FV
P V =M ׿
P V =1,000 ׿
P V =1,000 ׿
P V =1,000 ×.4096
P V =P 409.6
c. Price of the bond
P 50
Bo= ׿
2
Bo= 59.04 + 409.6
Bo= 468.64
2. 1,000 par value
11% coupon rate
4 yrs maturity
11% required return rate
a. PV of bond
PV of Bond = I × ¿
PV of Bond = 110 × ¿
PV of Bond = 110 × 3.1024456+1,000× 0.658730
PV of Bond = 341.24+ 658.73
PV of Bond = P999.97
b. 14% return rate instead of 11%, PV of bond
PV of Bond = I × ¿
PV of Bond = 110 × ¿
PV of Bond = 110 × 2.913713045+ 1,000× 0.59208027737
PV of Bond = 320.51+592.08
PV of Bond = P912.59
c. 9% return rate, PV of bond
d. PV of Bond = I × ¿
PV of Bond = 110 × ¿
PV of Bond = 110 × 3.2397198+1,000 ×0. 70842521
PV of Bond = 356.37+708.43
PV of Bond = P1,064.8