1 a) Explain the formula for the bond price in cell B23 of Figure 7.1.

b) Why is the bond in Figure 7.1 selling at a discount below face value?

7.1 7.2 (HW) 7.3 (HW) 7.4 7.5 BOND VALUATION Annual Payments Inputs Number of Periods to Maurity (T) Face Value (PAR) $1,000 (1) Coupon Payment Enter =$B$13 and copy to the range D18.118 Discount Rate / Period in (2) Coupon Payment Face Value Enter-313439 Coupon Payment (PMT) (3) (Cash Flow)/((1+Discount Rate/Periody Period) Enter C18/((1+$B$12YC16) and copy across Bond Price using a Timeline Period 20.00 Cash Flows Present Value Bond Price 320.00 $19.09 $1909 $20.00 $17.81 $20.00 $17.40 $20.00 $17.00 $1,020.00 $84703 Cash Flows $19.54 $18.65 $18.23 Bond Price using the Formula Bond Price Bond Price using the PV Function Band Price (4) Sum of all the present Value of Cash Flows Enter SUMC19:J19) 15) The Bond Price Formula is PMT (- ))). PAR (1 ) Enter-3131-(1.312.88 12. 1.81278) 16)-PV(Discount Rate / Period, Number of Periods to Maturity, Coupon Payment. Face Value) Enter PVB12.08.313.00)