Question

Bond B is a 3% coupon bond with a yield of 8% that makes payments every month and has a maturity of 10 years. The face value of the bond is $100000. The company who originally sold you bond B have come on hard times. They have informed you that they will not be able to make the next 20 coupon payments but forecast that they will be able to make all payments after this date. What is the new value of the bond? What is the percentage change in price? Use excel for all calculations.

Answer 1

Original price of the bond	$656.58
PV of the future payments after 20 non payments	$696.60
New value of the bond	609.9124
Percentage change in price	-7.11%

Workings

AutoSave © of HO- Book1 - Excel Sign in File Home Insert Draw Page Layout Formulas Data Review View Help O Tell me what you want to do 11 = = n Calibri B I U - - A À - A - E Share con - AG A o T ZU Sort & Find & Filter Select Insert - $x Delete, Format ab General - $ - % 9 Number Paste S 2 to 3 Cell Styles Conditional Format as Formatting Table Clipboard Font Alignment Styles Cells Editing B2 Original price of the bond A Original price of the bond |--PV(8%/12,10*12,3%*1000/12,1000) PV of the future payments after 20 non payments --PV(8%/12,10*12-20,3%*1000/12,1000) New value of the bond =C5/(1+8%/12)^20 Percentage change in price =(C6-C2)/C2