Consider a bond with market value $92.37 (face value = $100) and a coupon of $5.059 dollars paid every six months (Semi-annually - December and June). The time to maturity is 10 semiannual periods. Assume today is January 1st, 2015. Therefore, the face value of the bond will be repaid on December 2019.
Upload your spreadsheet on the course website (you might want to use the spreadsheet “11 Bond Yield and Duration Example” that we analyzed in class as a starting point for your calculations) and provide the answers to the following questions on paper.
CALCULATION OF YTM | ||||||||||
Pv | Current Market Value | $92.37 | ||||||||
Nper | Number of semi annual period to maturity | 10 | ||||||||
Pmt | Semi annual coupon payment | $5.059 | ||||||||
Fv | Redemption payment at end of 10 periods | $100 | ||||||||
RATE | Semi annual Yield to maturity | 6.10% | (Using RATE function of excel with Nper=10,Pmt=5.059,Pv=-92.37,Fv=100) | |||||||
Annual YTM =((1+0.0610)^2)-1 | 0.125721 | |||||||||
Annual YTM in percentage | 12.5721% | |||||||||
DURATION OF BOND | ||||||||||
N | A | B=A/(1.125721^N) | C=A*N | D=C/(1.125721^N) | ||||||
Annual Period | Cash Flow | Present Value | Cash flow* | PV of (cash | ||||||
(PV)of Cash flow | Period | flow*Period) | ||||||||
0.5 | $5.059 | 4.768 | $2.530 | 2.384 | ||||||
1.0 | $5.059 | 4.494 | $5.059 | 4.494 | ||||||
1.5 | $5.059 | 4.236 | $7.589 | 6.353 | ||||||
2.0 | $5.059 | 3.992 | $10.118 | 7.984 | ||||||
2.5 | $5.059 | 3.763 | $12.648 | 9.406 | ||||||
3.0 | $5.059 | 3.546 | $15.177 | 10.639 | ||||||
3.5 | $5.059 | 3.342 | $17.707 | 11.698 | ||||||
4.0 | $5.059 | 3.150 | $20.236 | 12.601 | ||||||
4.5 | $5.059 | 2.969 | $22.766 | 13.361 | ||||||
Cashflow= | (100+5.059) | 5.0 | $105.059 | 58.114 | $525.295 | 290.569 | ||||
SUM | 92.37 | 369.49 | ||||||||
l Bond Duration in years | 3.999926 | (369.49/92.37) | ||||||||
RESALE PRICE AFTER 4 YEARS | ||||||||||
CF | PV=CF/(1.125721^N) | |||||||||
Annual Period after 4 years | Cash flow | PV of cash Flow | ||||||||
0.5 | $5.059 | 4.768 | ||||||||
Cashflow= | (100+5.059) | 1 | $105.059 | 93.326 | ||||||
SUM | 98.09 | |||||||||
Resale Price After 4 years | $98.09 | |||||||||
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Consider a bond with market value $92.37 (face value = $100) and a coupon of $5.059 dollars paid ...
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