Question

​(Bond valuation​) National​ Steel's 20​-year, ​$1,000 par value bonds pay 12 percent interest annually. The market price of the bonds is

​$1 200​, and your required rate of return is11 percent.

a. Compute the​ bond's expected rate of return.

b. Determine the value of the bond to​ you, given your required rate of return.

c. Should you purchase the​ bond?

(What function is used to calculate in excel??)))

Answer 1

a. Par Value =1000
Number of Years =20
Coupon =12%*1000 =120
Price of Bond =1200
a. Bond's Expected Return using Excel Function=RATE(20,120,-1200,1000) =9.70%

b. Price of Bond at 11% using excel function =PV(11%,20,-120,-1000) =1079.63


c. No the bond should not be bought because YTM is less than required rate