Bond Valuation

This challenge deals with bond valuation.

Task 1 will graph a yield curve by downloading data straight from the U.S. Treasury’s website. The yield curve is also called the structure of interest rate. Many people in the world of finance pay close attention to the yield curve.

Tasks 2–6 examine the bond price sensitivity with the change in yield to maturity (YTM). In the challenge, students will calculate bond prices based on different YTMs for two bonds with different coupon rates. Students will also find the percentage change in price from the current value of two bonds, assuming that the current YTM is 8% for both bonds. Finally, they will graph the relationship between YTM and price to visualize the price sensitivity.

Tasks 7–12 examine the relationship between YTM and bond price for discount, par, and premium bonds. Students will calculate bond values with YTMs of 13% (discount), 10% (par), and 7% (premium), and then graph the relationship between time to maturity and bond value for those three different bonds.