Please use EXCEL if you know how and EXPLAIN your work. Please solve the 4 bonds
ID: 2637980 • Letter: P
Question
Please use EXCEL if you know how and EXPLAIN your work. Please solve the 4 bonds on the right. thanks!!!
What is the current market price (the intrinsic value) of the bond L? The bond pay coupon payments semi-annually.
The answer should be calculated to two decimal places.
The Current Market Annual Interest Rate (i)
Number of Years to Maturity (m)
Annual Coupon Rate, (paid semi-annually) (k)
Par Value
Current Market Price of the Bond (the Bond Intrinsic Value)
Bond K
12%
18
8%
1,000
Bond L
4.8%
7
6.2%
1,000
Bond M
6.3%
5
5.8%
$1,000
Bond N
12.6%
30
10.5%
$5,000
The Current Market Annual Interest Rate (i)
Number of Years to Maturity (m)
Annual Coupon Rate, (paid semi-annually) (k)
Par Value
Current Market Price of the Bond (the Bond Intrinsic Value)
Bond K
12%
18
8%
1,000
Bond L
4.8%
7
6.2%
1,000
Bond M
6.3%
5
5.8%
$1,000
Bond N
12.6%
30
10.5%
$5,000
Explanation / Answer
Soultion. Intrinsic value of Bond is the present value of all future cash flows.
Solving using PV function in excel we get
Rate of interest(i) Years (n) Coupon Rate Coupon Payment Par value of Bond(FV) Present Value of Bond Bond K 12% 18 8% $40 $1,000 -$707.58 Bond L 4.80% 7 6.20% $31 $1,000 -$1,082.41 Bond M 6.30% 5 5.80% $29 $1,000 -$978.84 Bond N 12.60% 30 10.50% $263 $5,000 -$4,187.99 Answer Bond K 707.58 Bond L 1082.41 Bond M 978.44 Bond N 4187.99