A bond with a par value of $1000 has a coupon rate of 7 percent and matures

Question:

A bond with a par value of $1000 has a coupon rate of 7 percent and matures in 15 years. Using a spreadsheet program, graph its price versus different yields to maturity, ranging from 1 percent to 20 percent. Is the relationship between price and yield linear? Why?

Semi-annual coupons = $35; number of periods = 15 x 2 = 30

A spreadsheet can be used to find the value of a bond with yields to maturity in different cells, ranging from 1 percent to 20 percent. The Chart Wizard in Excel can be used to plot the bond prices and yields. The relationship between price and yield to maturity is not linear as the present value equations require the use of exponents.

The present value decreases more sharply the higher the yield we use for discounting.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...