Bond Price Movements-Exce HOME INSERT PAGE LAYOUT FORMULAS DATA REVEW E 11AA B 1

Question

Bond Price Movements-Exce HOME INSERT PAGE LAYOUT FORMULAS DATA REVEW E 11AA B 1 u+: >. A. Alignment Number Conditional Format as Cell Cels Editing Formatting Table Styles Styles Clipboard Font A1 G H Bond X is a premium bond making semiannual payments.The bond pays a 9 percent coupon, has a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a 7 percent coupon, has a YTM of 9 percent, and also has 13 years to maturity. What is the dolar price of each bond today? If interest ratos remain unchanged, what do you expect the price of these bonds to be one year from now? in three years? in eight years? In 12 years? Bond X Coupon rate 9% 7% Yield to maturity Settiement date Maturity date Maturity date Maturity date Maturity date Maturny date 1/1/2013 1/1/2012 1/1/2010 11/2001 Redemption (% of 100 ofcoupons per year Coupon rate Yield to maturity Complete the following analysis. Do not hard code values in your answers Sheeti 8 2 4

Explanation / Answer

Bond Price can be calculated using PV function in excel

For X, Bond Price = PV(rate = 7%/2, nper = 13 x 2, pmt = 90 / 2, fv = 1000, 0) = $1,168.90 is the price today

For Y, Bond Price = PV(rate = 9%/2, nper = 13 x 2, pmt = 70 / 2, fv = 1000, 0) = $848.53 is the price today

Bond X Bond Y Coupon 90 70 YTM 7% 9% N 13 13 Price (0) $1,168.90 $848.53 Price (1) $1,160.58 $855.05 Price (3) $1,142.12 $869.92 Price (8) $1,083.17 $920.87 Price (12) $1,019.00 $981.27

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