Question
I am confused on Part F. How to fill in the bond value table. Please let me know if I have done anything incorrectly along
I am confused on Part F. How to fill in the bond value table. Please let me know if I have done anything incorrectly along the way.
Bond Valuation Assume that a 30-year, 6% coupon bond with semiannual payments has a par value of $1,000 and may be called in 5 years at a call price of $1,040. The bond currently sells for $1,010 (assume that the bond has just been issued). Employ the excel file to answer the following questions: Part 1: Bond Yield A) Calculate the Periods to Maturity, Periodic Payment, and Periods until Callable (8 Points) B) Calculate the periodic Yield to Maturity using the Excel function and the Annualized Yield to Maturity. The Annualized Yield is equal to the periodic YTM times the number of periods (8 Points) C) Calculate the Annual Coupon Payment, Current Price, and the Current Yield. The current yield is defined as Annual Coupon payment/Current Price (8 Point) D) Calculate the Capital Gain or Loss Yield. Capital Gain or Loss Yield = Annualized YTM - Current Yield (8 Points) E) Calculate the Periodic Yield to Call using the Excel function and the Annualized Yield to Call (8 Points) Part 2: Relation between Bond Value and Market Interest Rate F) Calculate the Bond Value using the Excel function and create a bond value table (be sure to fill in the table) for different interest rates using the Excel function (8 Points) G) Graph the actual bond value considering call likelihood (y-axis) against the annual market interest rate (x-axis). Label the y-axis, x-axis, and chart title (8 Points)
Part 1: | |||||||||||||||||
A) Basic Input Data | |||||||||||||||||
Years to maturity: | 30 | Hint: N | |||||||||||||||
Periods per year: | 2 | Hint: M | |||||||||||||||
Periods to maturity: | 60 | Hint: (N)(M) | |||||||||||||||
Coupon rate: | 6% | ||||||||||||||||
Par value: | $1,000 | ||||||||||||||||
Periodic payment: | $30 | Hint: Annual coupon payment / M | |||||||||||||||
Current price | $1,010 | ||||||||||||||||
Call price: | $1,040 | ||||||||||||||||
Years until callable: | 5 | ||||||||||||||||
Periods until callable: | 10 | Hint: (Years to call)(M) | |||||||||||||||
B) Yield to Maturity | |||||||||||||||||
Nper | Pmt | PV | FV | ||||||||||||||
60 | $30.00 | $1,010.00 | $1,000.00 | (See https://support.office.com/en-US/article/RATE-function-9F665657-4A7E-4BB7-A030-83FC59E748CE) | |||||||||||||
Peridodic YTM = | 2.96% | Hint: Employ the function "=Rate(Nper,Pmt,-PV,FV)" | |||||||||||||||
Annualized YTM = | 5.93% | Hint: (Periodic YTM)(M) | |||||||||||||||
C) Current Yield | |||||||||||||||||
Annual Coupon Payment = | $60 | ||||||||||||||||
Current Price = | $1,010 | ||||||||||||||||
Current yield = | 5.94% | Hint: Annual Coupon payment / Current Price | |||||||||||||||
D) Capital Gain or Loss Yield | |||||||||||||||||
Annualized YTM = | 5.93% | ||||||||||||||||
Current Yield = | 5.94% | ||||||||||||||||
Capital Gain or Loss yield = | -0.01% | Hint: Capital Gain or Loss Yield = Annualized YTM - Current Yield | |||||||||||||||
E) Yield to Call | |||||||||||||||||
Nper | Pmt | PV | FV | ||||||||||||||
10 | $30.00 | $1,010.00 | $1,040.00 | (See https://support.office.com/en-US/article/RATE-function-9F665657-4A7E-4BB7-A030-83FC59E748CE) | |||||||||||||
Peridodic YTC = | 3.23% | Hint: Employ the function "=Rate(nper,pmt,-pv,fv)" | |||||||||||||||
Annualized YTC = | 1.61% | Hint: (Periodic YTC)(M) | |||||||||||||||
Part 2) | |||||||||||||||||
F) Bond Value | |||||||||||||||||
Annual Market Rate: | 9% | ||||||||||||||||
Periodic Market Rate: | 4.50% | Hint: Periodic interest rate = Annual market rate / M | |||||||||||||||
PV of non callable bond: | |||||||||||||||||
Rate | Nper | Pmt | FV | ||||||||||||||
9.00% | 60 | $30.00 | $1,000.00 | ||||||||||||||
Value of bond if it is not called: | $337.12 | Hint: Employ the function "PV(Rate, Nper, -Pmt, -FV)" | (See https://support.office.com/en-US/article/pv-function-3d25f140-634f-4974-b13b-5249ff823415) | ||||||||||||||
PV of callable bond: | |||||||||||||||||
Rate | Nper | Pmt | FV | ||||||||||||||
4.50% | 60 | $30.00 | $1,040.00 | ||||||||||||||
Value of bond if it is called in 5 years: | $693.28 | Hint: Employ the function "PV(Rate, Nper, -Pmt, -FV)" | (See https://support.office.com/en-US/article/pv-function-3d25f140-634f-4974-b13b-5249ff823415) | ||||||||||||||
Number of periods if Bond | Future Value of Bond if | PV Value of Bond if | Will the Bond Be called? | Actual Value (PV) | Hint: Actual value depends on if the bond is called or not | ||||||||||||
Annual Market Rate | Periodic Market Rate | Not Called | Called | Periodic Payment | Not Called | Called | Not Called | Called | Yes/No | considering call likelihood | |||||||
0% | $1,000 | $1,040 | |||||||||||||||
2% | $1,000 | $1,040 | |||||||||||||||
4% | $1,000 | $1,040 | |||||||||||||||
6% | $1,000 | $1,040 | |||||||||||||||
8% | $1,000 | $1,040 | |||||||||||||||
10% | $1,000 | $1,040 | |||||||||||||||
12% | $1,000 | $1,040 | |||||||||||||||
14% | $1,000 | $1,040 | |||||||||||||||
16% | $1,000 | $1,040 |
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