2a) Fully list the four equivalent ways of calculating the bond price in Figure 7.2.
b) State whether the APR convention results in a higher or lower bond price than the EAR convention in Figure 7.2 and give the reason for this.
c) Fully explain the IF statement for calculating the discount rate per period in cell B12 of Figure 7.2.
d) Based on the first Chart in Figure 7.2, fully describe and explain the relationship between bond price and yield to maturity.
e) Based on the second chart in Figure 7.2, fully describe and explain what happens to the
premium bond price as the calendar time approaches maturity.
f) State and explain the effect of a higher coupon rate on a bonds price.
7.4 7.1 7.2 (HW) 7.5 7.3 (HW) Exch Rate BOND VALUATION EAR, APR, & Foreign Currencies Currency: US Dollar S100-$1.0p Currency Number (Select from below) 4 Inputs 1-Chinese Yuan Rate Convention 2 Annual Per (1) If Rate Convention EAR Then (1+Yield To Maturity)'(1/(Number of Payments/Year))- 1 Else (Yield To Maturity)/ Number of Payment/Year) Enter IF(C41,((1+B6) ( 1 / 87))-1,86/B7) 6.0996 Annual Coupon Rate 2 European Euro 0.7349 1.88 % 2 IDR 61.45 Yield to Maturity (Annualized) 1.08 % 3 Indian Rupee 2 Number of Payments/Year 4 US Dollar 2 (2) Coupon Rate Face Value /(Number of Payments/Year) Enter B5 B9/87 $1.00 Number of Periods to Maturity (T) 8 (3) Period/ (Number of Payments/Year) Enter B16/$B$7 and copy across 20 Face Value (PAR) $1.000 (4) Copy the Timeline, Formula, and Function from the previous sheet Copy the range B18:J26 from the previous sheet to B18 Outputs Discount Rate/ Period (r) 0 Coupon Payment (PMT) Bond Price using a Timeline 5 7 Period 2 4 6 8 3.0] Time (Years) Cash Flows Present Value of Cash Flows 6.0l 05 $9.40 1.0 $9.40 3.5 $940 1.5 20 2.5 4.0 $9 40 $9.40 $9 40 $1,009.400 $940 $9.35 $966 83 Bond Price By Yield To Maturity Bond Price $1,031.24 Bond Price using a Formula 4000 $1,031.24 | Bond Price 3,000 Bond Price using a Function 2,000 $1,031.24 Bond Price Band Price using the PRICE Function dnder APRI (5) If Rate Convention EAR, Then Blank, Else PRICE(DATE(2000,1.1),DATE(2000 Number of Periods to Maturity (Number of Payments / Year),1,1). Coupon Rate, Yield To Maturity, 100. (Number of Payments /Year)) Number of Periods to Maturity/ 100) Enter IF(C41,PRICE(DATE(2000,1.1). 1,000 Bond Pricina bv Calendar Time DATE(2000+B8/87.1.1).B5,86,100,B7)B9/100) 4.000 3000 2000 1,000 Exch ae $1.00 BOND VALUATION EAR, APR, & Foreign Currencies Currency: US Dollar $1.00 Currency Number Inputs (Select from below) Rate Convention 1 Chinese Yuan 2 Annual Per v6.09 (1) If Rate Convention EAR, Then (1+Yield To Maturity(1 / (Number of Payments/Year))-1 Else (Yield To Maturity) / Number of Payment/Year) Enter IF(C4-1,(1 B6) ( 1 /B7)-1,B6/B7) Annual Coupon Rate 1.88 % 2 European Euro 0.73 IDR 61. Yield to Maturity (Annualized) 1.08% 3 Indian Rupee 4 US Dollar Number of Payments/ Year $1. (2) Coupon Rate Face Value /(Number of Payments /Year) Enter B5 B9/87 Number of Periods to Maturity (T) (3) Period/ (Number of Payments/Year) Enter -B16/SBS7 and copy across Face Value (PAR) 20 $1,000 (4) Copy the Timeline, Formula, and Function from the previous sheet Copy the range B18 J26 from the previous sheet to B18 Outputs Discount Rate / Period (r) Coupon Payment (PMT) 0 $9 Bond Price using a Timeline Period Time (Years) Cash Flows Present Value of Cash Flows Bond Price 1 2 3 4 5 6 3.0 $9.40 7 8 2.5 $9 40 0.5 S9.40 1.0 2.0 $9 40 3.5 $9 40 1.5 4.0 $1,009 40 $940 $940 $9.3 $966.83 Bond Price By Yield To Maturity $1,031.24 Bond Price using a Formula Bond Price 4.000 $1,031.24 3,000 Bond Price using a Function 2,000 Bond Price $1,031.24 1,000 Bond Price using the PRICE Function (ender APRI (5) If Rate Convention EAR, Then Blank, Else PRICE(DATE (2000,1,1),DATE(2000 Number of Periods to Maturity /(Number of Payments /Year),1,1). Coupon Rate, Yield To Maturity, 100, (Number of Payments/Year)) Number of Periods to Maturity/ 100) Enter IF(C4 1,PRICE(DATE(2000,1,1) Bond Pricina bv Calendar Time DATE(2000+B8/B7.1.1).B5.B6,100.B7)'B9/100) 4,000 3,000 2.000 1,000 C
