Excel Activity: Bond Valuation Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 13% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has a 9 annual coupon, matures in 12 years, and has a $1,000 face value Each bond has a yield to maturity of 11% The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Use a minus sign to enter negative values, if any. If an answer is zero, enter "o". Download spreadsheet Band Valuation 606a9ds a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par Bond A is selling at par because its coupon rate is equal to the going interest rate. Bond Bis selling at premium because its coupon rate is greater than the going interest rate. Bond C is selling at a discount because its coupon rate is less than the going interest rate. b. Calculate the price of each of the three bonds. Round your answers to the nearest cent. Price (Bond A): $ 1000.00 Price (Bond B): $ 1129.85 Price (Bond C): 5 870.15 c. Calculate the current yield for each of the three bonds. (Hint: The expected current yield is calculated as the annual interest divided by the price of the bond.) Round your answers to two dedmal places. Current yield (Bond A): 11.00 Current yield (Bond B): 11.51 9 Current yleld (Bond C): 10.24 d. If the vield to maturity for each bond remains at 11%, what will be the price of each bond 1 year from now? Round your answers to the nearest cont. Price (Bond A): 1000.00 Price (Bond B): $ 1124.13 875.87 Bond A 0.00 11.00 % Price (Bond C): 5 What is the expected capital gains yield for elt bondWhat is the expected total return for each bond? Round your answers to two decimal file Bond B Bond C Expected capital gains yield -0.51 0.66 Expected total return 11.00 11.00 . Mr. Clark is comidering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (le, it pays a 545 coupon every months). Bonds scheduled to mature in 9 years and has a price of $1,150. It is also callable in 6 years at a call price of $1,080. 1. What is the bond's nominal vield to maturity? Round your answer to two dedmal places. 6.75 % 2. What is the bonds nominal vled to call Round your answer to two decimal places 6.99 3.1 Mr. Clark were to purchase this bond, would he be more likely to receive the vield to maturity or yield to cal? Explain your answer. Because the YTM is less than the YTC, M. Clark should not expect the bond to be called. Consequently, he would earn YTM * 1. Explain briefly the difference between price risk and reinvestment risk. This risk of a decline in bond values due to an increase in interest rates is called price rates is called envestment The risk of an income decine due to a drop in internet Which of the following bonds has the most price rok which has the most reinvestment is A 1-year bond with an 11% annual coupon A 5-year bond with an 11% annual coupon A 5-year bond with a zero coupon A 10-year bond with an 11% annual coupon A 10-year bond with a zero coupon 1 year bond with a 200 coupon has the most price risk Ayeur bond with an 11% annunt coupon has the most reinvestment risk. 9. calculate the price of each bond (A, B, and clot the end of each year until maturity, assuming interest rates remain constant. Round your answers to cent Bond A Bondc Bond B $ S Years Remaining Until Maturity 12 11 10 9 8 7 $ $ $ $ $ $ $ $ $ $ $ $ 6 $ $ $ 5 $ $ $ 4 $ 5 $ 2 5 $ $ $ $ $ $ 1 $ $ 1. What is the expected current yield for each bond in each year? Round your answers to two decimal places Bond A Years Remaining Untit Maturity 12 11 Bond Bond 9% % 14 10 % 94 % % 9 96 % 96 8 % % 96 7 % % 16 % 6 5 % 9% % % 4 3 % 96 % % %% % 2 1 % 96 % 94 2. What is the expected capital gains yield for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Hond B Bond c 12 % % 11 10 % 9 8 7 6 5 4 3 2. 3. What is the total return for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Bond B Bond c 12 % % 96 11 % % 96 10 % % 96 9 % % % 8 % % % 7 % % 96 6 % % % 5 % % 96 4 % % % 3 % % 96 2 % % % 1 % % %
