Please explain on Excel. Bond valuation. A tax-exempt bond was recently issued a
ID: 2737429 • Letter: P
Question
Please explain on Excel.
Bond valuation. A tax-exempt bond was recently issued at an annual 10 percent coupon rate and matures thirty years from today. The par value of the bond is $5,000.
a) If the required market rates are 10 percent, what is the market price of the bond?
b) If the required market rates fall to 5 percent, what is the market price of the bond?
c) If the required market rates rise to 20 percent, what is the market price of the bond?
d) At what required market rate (5 percent, 10 percent, or 20 percent) does the above
bond sell at discount? At premium?
Explanation / Answer
Use =PV(rate,nper,pmt,FV) formula to calculate the present value of the bond which is the market price of the bond.
Here, rate = Market Rate
nper = Number of total payments
pmt = Amount of coupon on each payment
FV = Maturity amount of bond
a) Use =PV(0.10,30,500,5000) to get market price of $5,000.
b) Use =PV(0.05,30,500,5000) to get market price of $8,843.11.
c) Use =PV(0.20,30,500,5000) to get market price of $2,510.53.
d) At 5% the bond is sell for premium, at 20% the bond is sell at discount.