Excel Modeling Problems

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Seth Taylor ACSI 4200 October 20, 2013 Excel Modeling Problems – Chapter 6 An annual bond has a face value of $1,000, makes an annual coupon payment of $12 per year, has a discount rate per year of 4.3%, and has 8 years to maturity. What is the price of this bond? Using Excel’s PV function… =-PV(discount rate, years to maturity, annual coupon payment, face value) =-PV(4.3%, 8, $12, $1,000) = $793.85 A semi-annual bond has a face value of $1,000, an annual coupon rate of 4.60%, a yield to maturity of 8.1%, makes 2 (semi-annual) coupon payments per year, and 10 periods to maturity (or 5 years to maturity). Determine the price of this bond based on the Annual Percentage Rate (APR) convention and the price of this bond based on the Effective Annual Rate (EAR) convention. APR (annual percentage rate) convention: $688.71 EAR (effective annual rate) convention: $688.39 Determine the relationship between bond price and yield to maturity by constructing a graph of the relationship. The higher the yield to maturity, the lower the bond price. Perform instant experiments on whether changing various inputs causes an increase or decrease in the Bond Price and by how much. If the annual coupon rate increases, then the bond price increases. If the yield to maturity increases, then the bond price decreases. If the amount of payments per year increases, then the bond price decreases. If the face value increases, then the bond price increases. If the maturity period increases, then the bond price decreases. If the coupon rate increases while the yield to maturity stays constant, then the bond price increases. 5) a) $1,067.55 b) $240.03 c) 5.72% d) $763.46 e) 39

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