The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 5%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years.
The market interest rate for similar bonds is 12%.
What is the price of bond A?
What is the price of bond B?
Now assume that yields increase to 15%. What is the price of bond A?
What is now the price of bond B?
Market rate -12%
Formula is =PV(rate,nper,pmt,fv)
Bond A:
=PV(12%/2,1*2,5%/2*1000,1000)
=935.83
Bond B:
=PV(12%/2,30*2,5%/2*1000,1000)
=434.35
Market rate -15%
Bond A:
=PV(12%/2,30*2,5%/2*1000,1000)
=434.35
Bond B:
=PV(15%/2,30*2,5%/2*1000,1000)
=342.03
The University of California has two bonds outstanding. Both issues have the same credit rating, a...
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