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Problem 1: (Excel is not required)
Explain the different between Expected Rate of Return and free risk rate (10 points)
Problem 2: (Excel is not required)
PeterCo has the following Government Bonds:
a-Complete the following table (Excel is not required, 10 points)
PeterCo Bonds % YTM, maturity=10Years S&P Rating Order from most secure (1) to least (5) Mark with “x” the Junk Bonds
A 3,1 BBB
B 2,3 A
C 4,6 BB
D 17.9 CC
E 12,3 CCC
b) Explain this: “As interest rates increase (decrease), the value of the bond decreases (increases)”, using Financials arguments and represent this relationship graphically (10 points):
