Bond Valuation, economics homework help

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wbarmabah

Economics

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Hello!

  1. Using Excel, complete the following problems in your textbook:
    1. Bond Valuation: Problems 3, 6 and 10 on page 233
    2. Interest Rate Risk: Problems 19 and 20 on page 234
    3. Yield to Maturity & Rates of Return: Problems 12 and 21 on page 234
Please complete the above problems in the attached xls.

Thanks!

3Valuing Bonds [LO2] Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 23 years to maturity, and a coupon rate of 5.8 percent paid annually. If the yield to maturity is 4.7 percent, what is the current price of the bond?

6Bond Prices LO2> Sqeekers Co. issued 15-year bonds a year ago at a coupon rate of 4.1 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 4.5 percent, what is the current bond price?

10Valuing Bonds [LO2] Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 4.9 percent paid semiannually and 13 years to maturity. The yield to maturity of the bond is 3.8 percent. What is the price of the bond?

19.Interest Rate Risk [LO2] Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

20. Interest Rate Risk [LO2] Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

12.Calculating Real Rates of Return [LO4] If Treasury bills are currently paying 5.1 percent and the inflation rate is 2.2 percent, what is the approximate real rate of interest? The exact real rate?

21.Bond Yields [LO2] Bourdon Software has 6.4 percent coupon bonds on the market with 18 years to maturity. The bonds make semiannual payments and currently sell for 106.8 percent of par. What is the current yield on the bonds? The YTM? The effective annual yield?

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Chapter 7 Problems 4, 6, 7, 21, 32 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-In" be installed in Excel. To install these, click on the Office button then "Excel Options," "Add-Ins" and select "Go." Check "Analyis ToolPak" and "Solver Add-In," then click "OK." Chapter 7 Question 4 Input area: Settlement date Maturity date Annual coupon rate Coupons per year Face value (% of par) Bond price (% of par) Years to maturity Output area: Yield to maturity #NUM! Approximate YTM #DIV/0! Chapter 7 Question 5 Input area: Years to maturity Coupons per year Face value Bond price Yield to maturity Output area: Present value of final payment Present value of coupon payments Coupon payment Coupon rate $ $ #NUM! #NUM! Chapter 7 Question 6 Input area: Settlement date Maturity date Coupon rate Coupons per year Face value Yield to maturity Par value Output area: Price #NUM! Chapter 7 Question 21 Input area: Settlement date Maturity date Annual coupon rate Coupons per year Face value (% of par) Bond price (% of par) Output area: Current yield #DIV/0! Yield to maturity #NUM! Effective annual rate #NUM! Chapter 7 Question 32 Input area: Bond P: Coupon rate Yield to maturity Settlement date Maturity date Face value # of coupons per year Bond D: Coupon rate Yield to maturity Settlement date Maturity date Face value # of coupons per year 0% 1/0/1900 1/0/1900 Date one year from now Output area: Current price of Bond P Price in 1 year #NUM! #NUM! Current price of Bond D Price in 1 year #NUM! #NUM! Current yield of Bond P #NUM! Capital gains yield of Bond P #NUM! Current yield of Bond D #NUM! Capital gains yield of Bond D #NUM! All else held constant, premium bonds pay high current income while having price depreciation as maturity nears; discount bonds do not pay high current income but have price appreciation as maturity nears. For either bond, the total return, is still 9%, but this return is distributed differently between current income and capital gains.
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Explanation & Answer

Hi there,Attached is the same Excel file, but now with 19 visible and explanations provided for 21.If anything else needs to be changed, please let me know :)Selenica

SOLUTION:
A)

Future Value
PMT
Nper
Rate
Coupon Rate

1000.00
58.00
23.00
4.70%
5.80%

PMT = Par Value * Coupon Rate
PMT = 1,000 * 5.8%
PMT

58.00

Using excel formula,
Present Value

$1,152.66

SOLUTION:
A)

Future Value1000.00
PMT
41.00
Nper
30.00
Rate
4.50%
Coupon Rate 4.10%
PMT = Par Value * Coupon Rate
PMT = 1,000 * 4.1%
PMT

41.00

Using excel formula,
Present Value
$934.84

If rates rose by 2%:
BondSam Value
Ra...


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