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Financial Analysis Using Excel: Bond Valuation

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After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semi-annual payments):

Bond A Bond B
Settlement Date 12/15/2007 12/15/2007
Maturity Date 4/15/2014 6/15/2025
Coupon Rate 5.00% 9.50%
Price $890 $1,040
Face Value $1,000 $1,000
Required Return 7.25% 8.75%

a) Using the PRICE function, calculate the intrinsic value of each bond. Is either bond currently undervalued? How much accrued interest would you have to pay for each bond?

b) Using the YIELD function, calculate the yield to maturity of each bond using the current market prices

c) Using the DURATION function, which bond would you rather own if you expect market rates to fall by 2% across the maturity spectrum? What if rates will rise by 2%? Why?

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See the attached file. The text here may not print correctly. Look at the formulas in Excel file.

Bond Valuation

After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume SEMI-ANNUAL payments):

Bond A Bond B
Settlement Date 15/12/2007 15/12/2007
Maturity Date 15/04/2014 15/06/2025
Coupon ...

Solution Summary

This tutorial provides guidelines on how to calculate bond valuation on Excel.

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See Also This Related BrainMass Solution

Foundation of Financial Management

You are given the following data on bonds from AT&T, Dell, and IBM. Each bond has a par value of $1000.

AT&T
Dell
IBM

Coupon
6.80
6.50
8.375%

Maturity
05/15/2036
04/15/2038
11/01/2019

Frequency
Semiannual
Semiannual
Semiannual

Rating
A
A-
A+

Calculate the value of the bond if your required return is 5 percent on AT&T, 6.5 percent on Dell, and 8 percent on IBM.
Determine the yield to maturity (YTM) on the bonds given the following prices.
AT&T
Dell
IBM

Price
$1,060.00
$1,016.57
$1,307.78

Based on each bond's ratings and your determination of its yield to maturity explain how you rank each bond for risk and return.
Assume you had $10,000 to invest. How many of each bond would you have? What dollar amount of interest would each bond return on the investment for the next year? What would your percentage return be for the year, that is, your interest payments divided by the total amount invested? You must submit your backup in Excel or other supporting documentation showing how answers were reached.

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