You are considering the following bonds to include in your portfolio: Bond 1 Bond 2 Bond...
- You are considering the following bonds to include in your portfolio:
|
Bond 1 |
Bond 2 |
Bond 3 |
|
|
Price |
$900.00 |
$1,100.00 |
$1,000.00 |
|
Face Value |
$1,000.00 |
$1,000.00 |
$1,000.00 |
|
Coupon Rate |
7.00% |
10.00% |
9.00% |
|
Frequency |
1 |
2 |
4 |
|
Maturity (Years) |
15 |
20 |
30 |
|
Required Return |
9.00% |
8.00% |
9.00% |
- Determine the highest price you would be willing to pay for each of these bonds using the PV function. Also find whether the bond is undervalued, overvalued, or fairly valued.
- Determine the yield to maturity on these bonds using the Rate function assuming that you purchase them at the given price. Also calculate the current yield of each bond.
Homework Answers
| Bond 1 | Bond 2 | Bond 3 | ||
| a-1 | Highest price | $838.79 | $1,197.93 | $1,000.00 |
| a-2 | Overvalued | Undervalued | Fair price | |
| b | YTM | 8.18% | 8.92% | 9.00% |
| b2 | Current yield | 7.78% | 9.09% | 9.00% |
Workings
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You are considering the following bonds to include in your
portfolio:
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