• WhatarethecashpaymentsassociatedwiththeSleepingBeauties?Whogetshowmuchandwhen,per$100ofbondsissued?Considerthefollowingdates:theissuedate,thedateofthefirst,second,etc.interestpayments,thematuritydate.(Assumethebondsremainoutstandingthrough2093.)
• The next sheet in the Workbook is called "Maturity." The first three columns are identical to the Basic Spreadsheet. The next column contains cash flows for a bond that is just like Sleeping Beauty, but lasts only 10 years ("Napping Beauty"). Column F contains the same list of interest rates as in the Basic Spreadsheet. Columns G and H contain prices for the Sleeping and Napping bonds that correspond to the different interest rates. (You can check your answers to Question 5 against the values in Column F.)

a. Compare the prices of the Sleeping and Napping bonds at the initial interest rate of

7.55%. Why are they the same? What does this say about the expected price path of

the Sleeping Beauties as time passes, if interest rates remain around 7.55%?

b. Suppose interest rates fluctuate wildly during the next two years and then stabilize

again at around 7.55%. What do you predict would happen to the price of each of the

bonds?

Walt Disney Company's Slepping Beauty BondsDuration Analysiscourseware Harvard Business School Case 294038 Courseware 9208725 This courseware was prepared by Professor Carliss Y. Baldwin solely for students as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright 2008 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system, used in a spreadsheet or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwisewithout the permission of Harvard Business School. Sleeping Beauty Basic Spreadsheet Calendar Year Relative Year Cash Flow per $100 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 Present Present Value Value Each Cash Flow 100.00 Sleeping Beauty Present Value as a Function of the Interest Rate Calendar Year Relative Year Cash Flow per $100 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 Interest Rates 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Present Values Sleeping Beauty Bonds of Different Maturity Calendar Year Relative Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Cash Flow per $100 Sleeping Napping Beauties Beauties 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 7.55 107.55 Interest Rates 2% 3% 4% 5% 6% 7% 7.55% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Present Value Sleeping Napping Beauties Beauties $339.20 $243.78 $186.99 $150.61 $125.76 $107.85 $100.00 $94.38 $83.89 $75.50 $68.64 $62.92 $58.08 $53.93 $50.33 $47.19 $44.41 $41.94 $39.74 $37.75 $149.85 $138.81 $128.79 $119.69 $111.41 $103.86 $100.00 $96.98 $90.69 $84.95 $79.68 $74.86 $70.43 $66.36 $62.61 $59.16 $55.98 $53.04 $50.32 $47.80 Sleeping Beauty Calculation of Duration Calendar Year Relative Year Sleeping Beauties Interest Rate Duration (in Years) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067 2068 2069 2070 2071 2072 2073 2074 2075 2076 2077 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 10-Year Bond 30-Year Bond 30-Year Zero 7.55% 7.55% 7.55% 7.55% 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 0.85 0.79 0.74 0.68 0.64 0.59 0.55 0.51 0.48 0.44 0.41 0.38 0.36 0.33 0.31 0.29 0.27 0.25 0.23 0.21 0.20 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.10 0.09 0.08 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 0.02 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 51.94 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 12.11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 519.41 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089 2090 2091 2092 2093 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.07 Sleeping Beauty Sensitivity Up Calendar Year Relative Sleeping Year Beauty 10-Year Bond 30-Year Bond 30-Year Zero 7.55% 7.55% 7.55% 7.55% 100.00 100.00 100.00 100.00 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 0.85 0.79 0.74 0.68 0.64 0.59 0.55 0.51 0.48 0.44 0.41 0.38 0.36 0.33 0.31 0.29 0.27 0.25 0.23 0.21 0.20 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.10 0.09 0.08 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 51.94 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 12.11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 Interest Rate Value % Ch. In Value 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067 2068 2069 2070 2071 2072 2073 2074 2075 2076 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 2077 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089 2090 2091 2092 2093 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.07 Sleeping Beauty Sensitivity Down Calendar Year Relative Sleeping Year Beauty 10-Year Bond 30-Year Bond 30-Year Zero 7.55% 7.55% 7.55% 7.55% 100.00 100.00 100.00 100.00 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 0.85 0.79 0.74 0.68 0.64 0.59 0.55 0.51 0.48 0.44 0.41 0.38 0.36 0.33 0.31 0.29 0.27 0.25 0.23 0.21 0.20 0.18 0.17 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.10 0.09 0.08 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 51.94 7.02 6.53 6.07 5.64 5.25 4.88 4.54 4.22 3.92 3.65 3.39 3.15 2.93 2.73 2.53 2.36 2.19 2.04 1.89 1.76 1.64 1.52 1.42 1.32 1.22 1.14 1.06 0.98 0.91 12.11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 Interest Rate Value % Ch. In Value 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 2063 2064 2065 2066 2067 2068 2069 2070 2071 2072 2073 2074 2075 2076 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 2077 2078 2079 2080 2081 2082 2083 2084 2085 2086 2087 2088 2089 2090 2091 2092 2093 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.07 Sleeping Beauty The Relation between Duration and Interest Rate Sensitivity Sleeping Beauty 10-Year Bond 30-Year Bond 30-Year Zero % Ch if Rate Down 1% 0.0% 0.0% 0.0% 0.0% Duration 0.00 0.00 0.00 0.00 % Ch. If Rate Up 1% 0.0% 0.0% 0.0% 0.0%