Question

Video Excel Online Structured Activity: Bond valuation An Investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.1%. Bond C pays a 10% annual coupon, while Bond 2 is a zero coupon bond. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Assuming that the yield to maturity of each bond remains at 8.1% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Do not round intermediate calculations. Round your answers to the nearest cent. Years to Maturity Price of Bond C Price of Bond Z

Answer 1

Given for bond C

Face value = $1000

time to maturity = 4 years

YTM = 8.1%

Coupon rate = 10% annually

So coupon = 10% of 1000 = $100

Given for bond Z

Face value = $1000

time to maturity = 4 years

YTM = 8.1%

Coupon = 0

Price of the bond can be calculated using excel formula =PV(rate, nper, pmt, FV)

using same formual, below is the price of both the bond for different maturities.

Maturity	PV formula for bond C	Price of bond C	PV formula for bond Z	Price of bond Z
4	PV(8.1%, 4, 100, 1000)	₹ 1,062.79	PV(8.1%, 4, 0,1000)	₹ 732.31
3	PV(8.1%, 3, 100, 1000)	₹ 1,048.88	PV(8.1%, 3, 0,1000)	₹ 791.63
2	PV(8.1%, 2, 100,1000)	₹ 1,033.84	PV(8.1%, 2, 0,1000)	₹ 855.75
1	PV(8.1%, 1, 100,1000)	₹ 1,017.58	PV(8.1%, 1, 0,1000)	₹ 925.07
0	PV(8.1%, 0, 100,1000)	₹ 1,000.00	PV(8.1%, 0, 0,1000)	₹ 1,000.00

this function will give negative price as it assume cash outflow. So i have used negative sign before the formula