Question

​(Bond valuation​) You are examining three bonds with a par value of ​$1 comma 000 ​(you receive ​$1 comma 000 at​ maturity) and are concerned with what would happen to their market value if interest rates​ (or the market discount​ rate) changed. The three bonds are Bond Along dasha bond with 4 years left to maturity that has an annual coupon interest rate of 8 ​percent, but the interest is paid semiannually. Bond Blong dasha bond with 8 years left to maturity that has an annual coupon interest rate of 8 ​percent, but the interest is paid semiannually. Bond Clong dasha bond with 17 years left to maturity that has an annual coupon interest rate of 8 ​percent, but the interest is paid semiannually. What would be the value of these bonds if the market discount rate were a. 8 percent per year compounded​ semiannually? b. 5 percent per year compounded​ semiannually? c. 17 percent per year compounded​ semiannually? d. What observations can you make about these​ results

Answer 1

	a	b	c
Bond	Price at 8%	Price at 5%	Price at 17%
Along	$1,000.00	$1,107.55	$746.24
Blong	$1,000.00	$1,195.83	$614.11
Clong	$1,000.00	$1,340.86	$503.64

d: As the yield rises, the prices decline. Hence yield is inversely related to Price.

Workings

AutoSaver HD Book1 - Excel Sign in - 0 X File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share Comments - 11 = = = 0 £:49 0 Calibri BIU - Z -A A - A- Insert - Delete - Format Paste 6 General 3- $ -% Number . Conditional Format as Formatting Table - Styles Cell Styles Sort & Find & Filter - Select Editing Clipboard Font Alignment Cells G1 Bond Along Price at 8% =-PV(8%/2,4*2,8%*1000/2,1000) Price at 5% --PV(5%/2,4*2,8%* 1000/2,1000) Price at 17% --PV(17%/2,482,8%*1000/2,1000) Blong --PV(8%/2,8*2,8%*1000/2,1000) --PV(5%/2,8*2,8%*1000/2,1000) --PV(17%/2,8*2,8%*1000/2,1000) Clong --PV(8%/2,17*2,8%*1000/2,1000) --PV(5%/2,17*2,8%*1000/2,1000) --PV(17%/2,17*2,8%*1000/2,1000) Sheet1 | Sheet2 | Sheet3 | Sheeta Sheets | Sheet6 | Sheet7 Sheets @ : Ready