Question

1. What is the present value of a 10-year, $1000 bond paying $75 annually when current interest rates are at 8.25%? 2. What is the present value of a 10-year, $1000 bond paying $75 annually when current interest rates are at 6.85%? 3. What is the present value of a 10-year, $1000 bond paying $75 annually when current interest rates are at 7.25%? 4. A ten year bond was issued 2 years ago for $1000 and paid $80 annually. If current interest rates are at 7.5%, what is the yield to maturity (YTM)? 5. A ten year bond was issued for $1000 and pays $65 annually. There is a 3 year call provision on this bond. What is the yield to call (YTC)?

Answer 1

Calculate the present value of the bond as follows:

- X f =PV(8.25%,10,-75,-1000) Function Arguments ? x pv Rate 3.259| Nper 10 Pmt -75 Fv -1000 Type = 0.0825 = 10 = -75 = -1000 = number 1 1 = 950.23697 Returns the present value of an investment: the total amount that a series of future payments is worth now. Rate is the interest rate per period. For example, use 6%/4 for quarterly payments at 6% APR. Formula result = $950.24 Help on this function OK Cancel

Present value is $950.24.

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Calculate the present value of the bond as follows: ДА В 427 Particular Amount 428 1 Present value $950.24 429 2 Present value $1,045.97 430 3 Present value $1,017.36 431 4 Present value $1,029.29 432 Yield to maturity 7.50% Formulas: A 427 4281 4292 430 3 431 4 432 B Particular Amount Present value =PV(8.25%,10,-75,-1000) Present value =PV(6.85%,10,-75,-1000) Present value =PV(7.25%,10,-75,-1000) Present value =PV(7.5%,8,-80,-1000) Yield to maturity =RATE(8,-80,C431,-1000)