FIN 3010 Module 4 Bond Valuation Assignment Example

Course	FIN-3010 Principles of Finance
Module	Module 4
Paper type	Written assignment 4: investments in bonds
Length	About 724 words, 5 pages
Format	APA 7 student paper
School	Thomas Edison State University
Program	Bachelor of Science in Business Administration
Updated	October 2026

Free sample paper for FIN 3010 Module 4

Pricing a Utility's Bonds: Present Value, Yield, Interest Rate Risk, Duration and the Credit Spread

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

FIN-3010: Principles of Finance

Mentor Name

Month Day, Year

What this page is doingThe title follows the order of the module's bond topics. All bonds and figures are composite, created for these original exercises.

Pricing a Utility's Bonds: Present Value, Yield, Interest Rate Risk, Duration and the Credit Spread

The exercises use the bonds of Atlantic Shore Power, a composite investor-owned electric utility in New Jersey rated in the middle of the investment-grade range. All bonds pay interest semiannually and have a $1,000 face value. Each problem gives the inputs, formula, calculation and answer, with all work shown as the course requires (Mayo & Lavelle, 2024).

Problem 1: Price of a Coupon Bond

A 10-year bond pays a 5% annual coupon in two $25 installments. Comparable bonds now yield 6%. What is its price?

Step	Work
Given	Coupon C = $25; r = 0.06 / 2 = 0.03; N = 20; face = $1,000
Formula	P = C x [1 minus (1 + r)^-N] / r + 1,000 / (1 + r)^N
Calculation	$25 x 14.8775 + $1,000 x 0.55368 = $371.94 + $553.68
Answer	$925.61, a discount because the coupon is below the market yield

Problem 2: Yield to Maturity and Current Yield

An 8-year bond with a 6% coupon sells for $1,040. Find its current yield and yield to maturity.

Step	Work
Current yield	Annual coupon / price = $60 / $1,040 = 5.77%
Approximate YTM	[C + (F minus P) / n] / [(F + P) / 2] = [$60 + ($1,000 minus $1,040) / 8] / $1,020 = 5.39%
Exact YTM (financial calculator: N = 16, PV = minus 1,040, PMT = 30, FV = 1,000)	2.689% per half-year x 2
Answer	Yield to maturity about 5.38%

Because the bond trades above face value, its yield to maturity is below both its coupon rate and its current yield: an investor who holds it to maturity loses the $40 premium over eight years.

Problem 3: Interest Rate Risk

If market yields on comparable bonds rise from 6% to 7%, what happens to the 10-year bond in Problem 1 and to a 2-year bond with the same coupon?

Bond	Price at 6%	Price at 7%	Change
10-year, 5% coupon	$925.61	$857.88	minus 7.3%
2-year, 5% coupon	$981.41	$963.27	minus 1.8%

Bond prices move opposite to interest rates, and longer bonds move more, because more of their cash flows are discounted over more periods at the new rate.

Problem 4: Duration

Duration, a measure introduced by Macaulay (1938), weights each payment's timing by its present value and approximates price sensitivity. For the 10-year bond at 6%, Macaulay duration is the sum of each period's present value times its period number, divided by the price.

Step	Work
Macaulay duration	15.78 half-years = 7.89 years
Modified duration	7.89 / (1 + 0.03) = 7.67
Approximate price change for a 1-point rise	minus 7.67 x 1% = minus 7.67%, close to the minus 7.3% computed directly

Problem 5: Zero-Coupon Bond

The utility also issued a 10-year zero-coupon note. If investors require 5.5% compounded semiannually, what is its price?

Step	Work
Formula	P = 1,000 / (1 + r)^N
Calculation	$1,000 / (1.0275)^20 = $1,000 / 1.72043
Answer	$581.25

With no coupons, all of the return comes at maturity, so a zero-coupon bond has a duration equal to its maturity and more interest rate risk than a coupon bond of the same term.

Problem 6: What the Credit Spread Pays For

The utility's 10-year bonds yield 6% while 10-year Treasury notes yield 4.3%, a spread of 1.7 percentage points. It is tempting to read the whole spread as compensation for the chance of default. Elton et al. (2001) decomposed corporate bond spreads and found that expected default losses explained only a small part of the spread, with state taxes on corporate interest, which Treasury interest avoids, and a premium for risk that also affects stocks explaining much of the rest. For an investment-grade utility, then, most of the 1.7-point spread is not expected loss; it is compensation for taxes and for bearing systematic risk.

What this page is doingEach problem ends with a sentence on what the number means, and the final problem uses research to interpret a market spread. That combination of computation and interpretation is what the course's exercises reward.

Summary

The six problems show the core relationships of bond investing: price is the present value of promised cash flows, yield and price move in opposite directions, longer maturities and lower coupons mean more interest rate risk, and the spread over Treasuries reflects more than default. These relationships also explain why bond investors watch the Federal Reserve closely, since a one-point rise in yields cost the holder of the 10-year bond more than a year's coupon income.

References

Elton, E. J., Gruber, M. J., Agrawal, D., & Mann, C. (2001). Explaining the rate spread on corporate bonds. The Journal of Finance, 56(1), 247-277. https://doi.org/10.1111/0022-1082.00324

Macaulay, F. R. (1938). Some theoretical problems suggested by the movements of interest rates, bond yields and stock prices in the United States since 1856. National Bureau of Economic Research.

Mayo, H. B., & Lavelle, M. (2024). Basic finance: An introduction to financial institutions, investments, and management (13th ed.). Cengage Learning.

What the FIN 3010 Module 4 instructions ask for

Module 4 of FIN-3010 covers bonds, and its exercises cover bond prices, yields, interest rate risk and related topics such as ratings, call features or duration. Each answer needs its exercise reference and enough working that the method can be followed. Bond problems involve semiannual coupons, so state how you converted the coupon, rate and number of periods before calculating. The midterm covers Modules 1 through 4 and includes numerical problems, so this assignment is also exam practice. A financial calculator is permitted on the exam if it is not on a phone. Check whether the problem's yields are annual or semiannual before you begin.

How the FIN 3010 Module 4 example is put together

All six problems use one company's bonds, so results can be compared directly. Each problem lists given values, the formula with semiannual adjustments, the calculation and the answer, and adds a sentence on what the answer means. Problem 2 shows both the approximation and the calculator inputs for yield to maturity. Problem 3 compares two maturities side by side to show interest rate risk, and Problem 4 checks that duration predicts the change computed directly. Problem 6 turns from computation to interpretation, using a study of corporate bond spreads. A short summary states the relationships the problems demonstrate. Calculator keystrokes are listed where a closed-form answer is not practical. A comparison table makes the effect of maturity visible at a glance.

Reading the FIN 3010 Module 4 grading rubric

Mentors grade bond exercises on correct use of formulas and inputs, especially the semiannual conversion of coupon, rate and periods, and on complete work. Final answers should be rounded to the cent, and the direction of price changes should make sense: a bond with a coupon below the market yield must sell at a discount. When yield to maturity is computed by calculator, listing the inputs counts as showing work. Start every answer with the exercise number it solves. Accurate, well-organized work also builds the skills the midterm's numerical problems test. Mentors also look for the correct sign on price changes when rates move.

FIN 3010 Module 4 help: mistakes that cost marks

Most bond errors come from forgetting semiannual adjustments: use half the annual coupon, half the yield and twice the number of years. Another frequent slip is confusing coupon rate, current yield and yield to maturity, which are equal only when a bond sells at face value. Check direction: if the market yield exceeds the coupon rate, the price must be below $1,000. In duration problems, distinguish Macaulay from modified duration. When a problem asks about default risk, remember that spreads include more than expected default. Our tutors can work your assigned FIN 3010 Module 4 bond problems with you, showing every step. Recheck that discount bonds price below $1,000 and premium bonds above it.

Write yours, or have the desk draft it

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More FIN 3010 and Bachelor of Science in Business Administration sample papers

FIN 3010 Module 4 questions, answered

Where can I find a free FIN 3010 Module 4 sample paper?

Six bond problems are solved in full on this page: six original problems on pricing, yield to maturity, interest rate risk, duration, a zero-coupon bond and credit spreads, with interpretation.

Why do bond prices fall when interest rates rise?

A bond's fixed payments are worth less when discounted at a higher rate, so its price must drop for its yield to match new market rates.

What is the difference between current yield and yield to maturity?

It is the bond's yearly interest payment expressed as a share of what the bond costs today. Yield to maturity adds the pull of the price toward face value as the bond approaches its maturity date.

What does duration measure?

The weighted average time to receive a bond's cash flows, which also estimates how far the price moves when yields shift by one percentage point.

Is a corporate bond's spread over Treasuries all default risk?

No. Research found expected default losses explain only part of the spread, with taxes and a risk premium explaining much of the rest.

FIN 3010 Module 4 Bond Valuation Problems Example