Question
HI, I am trying to solve the folllowing problem in Excell. The date format is dd.mm.yyyy. Thanks in advance Bond A Bond B Bond C
HI, I am trying to solve the folllowing problem in Excell. The date format is dd.mm.yyyy. Thanks in advance
Bond A | Bond B | Bond C | |
Settlement Date | 15.2.2015 | 15.2.2015 | 15.2.2015 |
Maturity Date | 15.8.2025 | 15.5.2035 | 15.6.2045 |
Coupon Rate | 5,00% | 7,50% | 8,00% |
Market Price | 987 | 1040 | 1098 |
Face Value | 1000 | 1000 | 1000 |
Required Return | 5,25% | 7,00% | 7,25% |
a)Using the Price function (Excell) calculate the intrinsic value of each bond. Are any of the bonds undervalued? How much accrued intrerest would you have to pay for each bond?
b) Calculate the current yield of each bond. Is this the total return that you would earn each year? If you were on fixed income woudl you care about this number?
c) using the Yield function, calculate the yield to maturity of each bond using the current market prices. How do the YTM compare to current yields of the bonds?
d) Calculate the duration and the modified duration of each bomd. Create a chart that shows bond measures versus maturity. Does duration increase lineraly with term? If not, what relationship do you see?
e) Which bond would you rather own if you expect market rates to fall by 2% for all bonds? What if rates will rise by 2%? Why?
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