YOU MUST USE TIME VALUE FUNCTINS IN EXCEL FOR ALL TIME VALUE COMPUTATIONS

1. An investor is considering purchasing a Starbucks bond.  The bond has a $1,000 face value, an 2.5% coupon rate and matures in 8 years.  The bond is rated A and is currently quoted at 93.50

a. If the investor decides to buy the bond today, how much will she pay, in dollars?

b. If the investor has a required return of 5%, what is the most she should be willing to pay for the bond today? Make relevant calculations in Excel so I can see all of your work. All time value computations must be done using the time value functions in Excel.

c. Based on your calculations, should the investor buy the bond or not?  Explain your reasoning briefly.

d. On the same day, a McDonalds bond that will also mature in 8 years and has a 3.7% coupon rate is quoted at 100.9.  The McDonalds bond is rated BBB.   Based on the information you have about the two bonds, why would a rational investor pay more for a McDonalds bond than for a Starbucks bond?

2. Which of the fed’s three new policy tools connected with bank reserve accounts is the least important?

a. term deposit facility

b. overnight reverse repurchase agreement facility

c. interest on reserve balances

d. reserve requirements