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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