| Course | MT217 Finance |
|---|---|
| Unit | Unit 6 |
| Paper type | Bond valuation exercise |
| Length | About 840 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT217 Unit 6
A 6.2 Percent Coupon in a 7 Percent Market: A Unit 6 Bond Valuation Exercise for a Freight Railroad Issue
[Student Name]
Purdue University Global
MT217: Finance
Unit 6 Bond Valuation Exercise
[Instructor Name]
[Date]
Great Plains and Western Railway and its bonds are composite and illustrative; the sources cited are real.
The Bond
Great Plains and Western Railway, a composite regional freight railroad, has a bond outstanding with a [$1,000] face value, a 6.2 percent annual coupon paid semiannually and twelve years to maturity. Each payment is [$31.00], and there are twenty-four payments left. Bonds of similar credit quality and maturity currently yield 7.0 percent, or 3.5 percent per half year.
Part One: Today's Price
The railroad's bond is priced by discounting its two kinds of cash flow, the semiannual coupons and the final [$1,000], at the 3.5 percent half-year market rate. The coupons form a 24-period annuity of [$31.00] at 3.5 percent per period, worth [$497.81]. The face value, received at the end of period 24, is worth 1,000 divided by 1.035 to the 24th power, or [$437.96]. Together they give a price of [$935.77].
The current yield, the annual coupon divided by the price, is [$62.00] over [$935.77], or 6.63 percent. It sits between the coupon rate and the market yield because the bond sells below face value: a buyer earns the coupon and also gains about [$64] as the price rises to [$1,000] at maturity.
What it means: whenever a fixed coupon pays less than new bonds of the same risk, it must sell at a discount so that its total return matches what investors can earn elsewhere.
Part Two: Moving the Yield
If yields on comparable bonds fell to 6.0 percent, the same cash flows discounted at 3.0 percent per period would be worth [$1,016.94], a premium above face value, because the coupon now pays more than the market requires. If yields rose to 8.0 percent, the price would fall to [$862.78].
What it means: a one-point fall in yields raises the price by about [$81], and a one-point rise lowers it by about [$73]. The changes are not symmetric; prices rise more when yields fall than they fall when yields rise by the same amount. Brigham and Houston (2019) describe this curvature as a property of fixed-rate bonds that benefits holders when rates fall.
Part Three: Moving Time
Now hold the yield at 7.0 percent and let time pass. With eight years left, the price is [$951.62]. With four years left, it is [$972.50]. With one year left, it is [$992.40]. At maturity it is [$1,000].
What it means: a discount bond's price climbs toward face value as maturity approaches, even if market yields never change. The holder earns that rise as part of the return, and a reader who sees the price going up should not assume yields have fallen.
Part Four: Short, Medium and Long
The railroad also has a 3-year bond and a 25-year bond outstanding, both with 6.2 percent coupons. At a 7.0 percent yield, the 3-year bond is worth [$978.69] and the 25-year bond [$906.18]. If yields rose one point to 8.0 percent, the 3-year bond would fall to [$952.82], a loss of about 2.64 percent; the 12-year bond would fall to [$862.78], about 7.80 percent; and the 25-year bond would fall to [$806.66], about 10.98 percent.
What it means: longer bonds carry more interest rate risk, because more of their value comes from cash flows far in the future, which a higher discount rate shrinks the most. Macaulay (1938) introduced duration as a measure of the average timing of a bond's cash flows, and it explains why the 25-year bond's price falls about four times as far as the 3-year bond's.
The same one-point rise cost the 3-year holder about $26 and the 25-year holder about $100.
What the Exercise Shows
Three lessons follow for an investor or a treasurer. Price and yield move in opposite directions, and not by equal amounts. A discount bond rises toward face value with time alone. And maturity is the main driver of how much a bond's price swings when rates change. Ross et al. (2022) note that this is why investors who expect rising rates often shorten the maturity of what they hold, and why issuers who expect them often lock in long-term rates while they can.
Part Four also matters to anyone holding the railroad's debt in a pension or insurance portfolio. A fund that must pay retirees in three years can hold the short bond with little worry about rate changes, since it will be repaid at face value soon. A fund with obligations decades away might prefer the 25-year bond despite its price swings, because its long cash flows match the timing of what the fund owes.
For the railroad's treasurer, the exercise suggests that refinancing the 25-year bond would make sense only if yields fell well below its 6.2 percent coupon, since its price is most sensitive to changes and the call premium would need to be covered.
References
Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management (15th ed.). Cengage.
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.
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw-Hill.
What the MT217 Unit 6 assignment asks for
Unit 6 commonly asks you to value a bond and explain how its price responds to changes in market yields and in time to maturity. Most prompts expect the price computed as the present value of the coupons plus the present value of the face amount, with the periods and rate adjusted for semiannual payments. Current yield and the relationship between coupon rate, market yield and price are usually required. Many sections also ask you to reprice the bond at different yields, show the pull toward face value over time and compare bonds of different maturities to illustrate interest rate risk. Each answer should be explained, not only computed. A conclusion about what the results mean for an investor or the issuer adds value. Say at the outset whether coupons are semiannual, number each part, and cite the textbook; four pages is common.
How the MT 217 Unit 6 example is put together
The exercise describes the bond, the payment of $31.00 every six months and the 3.5 percent half-year market rate. Part one discounts the coupons and the face value and adds them, then computes the current yield and explains why a discount bond's yield sits between its coupon and the market rate. Part two reprices the bond at 6.0 and 8.0 percent and points out, with a margin note, that the price rises more than it falls for the same change. Part three holds the yield steady and shows the price at eight, four and one year left. Part four compares the railroad's 3-year, 12-year and 25-year bonds after the same one-point rise, using Macaulay's duration to explain the difference, and the highlighted line converts the losses to dollars. A section on pension and insurance holders follows, and the conclusion views refinancing from the treasurer's side.
MT217 Unit 6 rubric: what earns full points
Bond exercises in this course are usually graded on correct valuation and on explaining price behavior. Adjusting the coupon and the number of periods for semiannual payments is the step graders check first. Computing the two pieces of value separately, coupons and face amount, shows understanding of where a bond's worth comes from. Current yield should be computed and interpreted. Repricing at different yields earns credit when the answer explains the inverse relationship and notices that changes are not symmetric. Showing the pull to face value with time alone demonstrates a concept students often confuse with yield changes. Comparing maturities illustrates interest rate risk, and a measure such as duration strengthens the explanation. Conclusions that apply the results to an investor or issuer show judgment. Macaulay's duration study and the course text should appear in the APA 7 list.
Common MT217 Unit 6 mistakes, and how to avoid them
Bond exercises often lose points by using annual periods for a semiannual bond, which misprices it. Another frequent mistake is confusing the coupon rate with the market yield, so the discount rate is wrong. Some students compute the price correctly but never explain why it is below or above face value. Others describe interest rate risk in general without comparing maturities. The pull to face value is often mistaken for a yield change. Current yield is sometimes confused with yield to maturity. Watch rounding in the face value discount factor, which is raised to a high power and amplifies small errors. If you use a financial calculator, record the inputs for each part. Send our writers the bond's terms and the questions in your prompt, and they can help set up each valuation and explain what moves the price.
Get an MT217 Unit 6 example written to your instructions
Upload the Unit 6 bond problems with their terms, the rubric and whether semiannual or annual conventions apply. Each bond is priced from its two streams, then repriced as yields and time change, every move explained in a sentence. Initial samples carry no charge, and 24-48h is the normal turnaround. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT217 Unit 6 questions, answered
Why is the bond priced below 1,000?
Because its 6.2 percent coupon pays less than the 7.0 percent the market currently requires. A buyer accepts the lower coupon only at a lower price, and the discount makes up the difference by maturity. If market yields fell below 6.2 percent, the same bond would sell above 1,000, which the sample shows at a 6.0 percent yield.
Do I have to use semiannual periods?
Semiannual coupons are the norm for corporate issues in this country, so textbook problems tend to assume them unless the wording says otherwise. Read the problem statement first. The sample states its convention at the top and applies it throughout. Mixing conventions within one answer, an annual yield with semiannual coupons, is a common source of lost points.
What is the pull to par?
The tendency of a bond's price to approach its face value as maturity nears, when yields hold steady. A discount bond rises and a premium bond falls, because fewer coupons remain to make up the difference between coupon and market rate. The sample shows the railroad bond climbing from 935.77 to 992.40 with one year left.
Where can I find a free MT217 Unit 6 sample paper?
This page shows a complete MT217 Unit 6 bond valuation exercise for a composite railroad bond. It prices the bond, reprices it at two yields and three maturities, compares three bonds' interest rate risk and includes margin notes.
Why does the long bond lose more value when yields rise?
Most of a 25-year bond's worth sits in coupons and principal decades away, and those distant payments are the ones a higher rate discounts hardest. A one-point rise cuts the 25-year bond by about 11 percent but the 3-year bond by under 3 percent.