valuation 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 a 9% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 7% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 9%. 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 "0" Download soreadsheet Bond Valuation 81890 xlsx 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 Bond 8 is selling at a discount Bond C is selling at a premium because its coupon rate is equal to the going interest rate. because its coupon rate is less an the going interest rate because its coupon rate is greater then the going interest rate. b. Calculate the price of each of the three bonds. Round your answers to the nearest cent Price (Sond A): $ 1000 Price (Bond B): $ 856.79 1143.21 Price (Bond C): 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 decimal places. Valuation 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 decimal places. Current yield (Bond A): 9 % Current yield (Bond B): 8.17 % Current yield (Bond C): 9.62% d. If the yield to maturity for each bond demains at 9%, what will be the price of each bond 1 year from now? Round your answers to the nearest cent Price (Bond A): 5 1000 Price (Bond B): $ 863.9 1136.1 Price (Bond C): S What is the expected capital gains yield for each bond? What is the expected total return for each bond? Round your answers to two decimal places. Expected capital gains yield Expected total retur Bond A Bond B % Bond C -62 e. Mr. Clark is considering another bond, Bond D. It has a 9% semiannual coupon and a $1,000 face value (Le, it pays a $45 coupon every 6 months). Bond Dis scheduled to mature in 8 years and has a price of $1,170. It is also callable in 6 years at a call price of $1,030. 1. What is the bond's nominal yield to maturity? Round your answer to two decimal places. 58335 2. What is the bond's nominal yield to call? Round your answer to two decimal places 5.266 % 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer Because the YTM is greater than the YTC, Mr. Clark should expect the bond to be called. Consequently, he would eam VTC NDTAP d Valuation 3. If Mr. Clark were to purchase this bond, would he be more likely to receive the yield to maturity or yield to call? Explain your answer. Because the YTM is greater than the YTC, Mr. Clark should expect the bond to be called. Consequently, he would earn YTC Q Search this course > f. 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 risk reinvestment risk v Which of the following bonds has the nest price risk? Which has the most reinvestment risk? A 1-year bond with a 9% annual coupon A 5-year bond with a 9% annual coupon A 5-year bond with a zero coupon A 10-year bond with a 9% annual coupon A 10-year bond with a zero coupon A 10-year bond with a zero coupon A 1-year bond with a 9% annual coupon v has the most price risk. has the most reinvestment risk. The risk of an income decline due to a drop in interest rates is called 9. Calculate the price of each bond (A, B, and C) at the end of each year until maturity, assuming interest rates remain constant. Round your answers to the nearest cent Years Remaining Until Maturity Bond A Bond B Bond C 12 $ 1000 $ 924.64 $ 924.64 11 $ $ $ 10 $ $ $ 9 $ $ $ B $ $ $ $ $ Nat Back pertatemocilobatt/xsx?access_token=00001420zeo9-09f91-0&filename=Bond Valuation-81890.xlsx Valuation search the g. Calculate the price of each bond (A, B, and C) at the end of each year until maturity, assuming interest rates remain constant. Round your answers to the nearest cent Years Remaining Back Until Maturity Bond A Bond B Bond C 12 1000 $ 924.64 $ 924.64 11 $ 10 $ 9 7 6 5 3 2 Numeric field $ $ $ $ $ Create a graph showing the time path of each bond's value. Choose the correct graph. The correct graph is graph A A. $1,400 $1,200 Bood Value $1,000 $800 5600- $400 B Time Paths of Bonds A, B, and C Time Paths of Bonds A, B, and C $1,400 $1,200 $1,000- $400- $400 et/wopi/download/lessgpadaleamo!1g408c6rilgubalt/xlsx?access_token=00001420zeo9-0y9sf91-0&file_name=Bond Valuation-818190.xlsx MacBook Pro Nest uation C. $1,400 Time Paths of Bonds A, B, and C D. Time Paths of Bonds A, B, and C $1,400 $1,200 $1,200 $1,000 $1,000 Bond Value 5800 $600 Bond Value $800- $600 $400 5400 $200 $200 50 50 12 9 12 Bond A Years Remaining Until Maturity Bond B Bond C Bond A Years Remaining Until Maturity Bond B Bond C Back 1. What is the expected current yield for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity Bond A Bond B % 12 % 11 % 10 % 9 % 8 7 6 5 % % Bond C % nuhattfyry?access token=00001420zeo9-Ovsf9t-0&file name Bond Valuation-818190.xlsx Search this cours Nest ation % % % 6 % % % 5 % % % 4 % % 3 % % 2 1 % 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 Bond B Bond C % % % 12 11 % % % %% 10 % % % % % 9 % % % 8 % % % 7 % % % 6 % % % 5 % % % 4 % % 3 % % 2 1 3. What is the total return for each bond in each year? Round your answers to two decimal places. Years Remaining Until Maturity 12 11 10 9 Bond A Bond B % % % % Bond C % % "download/lessgpadaleamo!1g4o8c6rl!gubalt/xlsx?access_token=00001420ze09-Oy9sf9t-0&file_name=Bond Valuation-818190.xlsx Back % % % 11 10 109876 % % % % % % of off of % % % % % % % % % % % % 5 % % % 4 % % % 3 % % % 2 1 % 3. What is the total return for each bond in each year? Round your answers to two decimal places. % % Years Remaining Until Maturity 12 Bond B Bond C Bond A % % % % % % 11 % % % 10 % % % 9 % % % 8 B7654321 % % % % % % % % % % % % % 4. % % % % % % % % Check My Work Reset