# Initial Value and Change in Value of Bonds

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Bond Price

a) Assume that UPC is issuing a 10-year, $10,000 par value bond with a 6% annual coupon if its required rate of return is 6%? What is the value of this bond?

N 10 Years to Maturity

CPN % 6% Coupon Rate

YTM 6% Yield-To-Maturity

Par Value $10,000

Discount or Premium

b) If the coupon rate changes to 7%, would UPC be issuing a discount or a premium bond?

N 10

CPN % 7%

YTM 6%

Par Value $10,000

c) If the coupon rate changes to 5%, would UPC be issuing a discount or a premium bond?

N 10

CPN % 5%

YTM 6%

Par Value $10,000

d) Values of the 5%, 6%, and 7% coupon bonds over time if the required return remained at 6%. Complete the table for years 1-8.

Maturity 5% coupon bond 6% coupon bond 7% coupon bond

0 $9,263.99 $10,000 $10,736.01

1

2

3

4

5

6

7

8

9

10 $10,000.00 $10,000 $10,000.00

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##### Solution Summary

This solution illustrates how to use Excel functions (with an explanation of each function) to value a bond and how to prepare amortization schedules for bonds selling at discounts and premiums.

##### Solution Preview

Please see the attached Excel 97-2003 spreadsheet for full solutions.

a) PV(B10,B8,-B11*B9,-B11,0) = $10,000

b) PV(B20,B18,-B21*B19,-B21,0) = 10,736.01

c) PV(B29,B27,-B30*B28,-B30,0) = $9,263.99

d) ...

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