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# Initial Value and Change in Value of Bonds

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

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

#### Solution Preview

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) ...

#### 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.

\$2.19