#1 , 2 , 3, 4 & 5. Finance 250-QCC Professor Ken Friedman Principals of Finance
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Question
#1 , 2 , 3, 4 & 5.
Finance 250-QCC Professor Ken Friedman Principals of Finance Bond Valuation Analvsis 1) For the following bond valuation scenarios determine: the market value of the bond, Pu, July, 2018 along with the present discounted value of its two components: the coupon interest payments and the principal value repaid at maturity c n Coupon Interest Rate Years Until Maturity kYield to Maturity (1) c-4%; k=5%; n-10 years (2) c-7% ; k=3%; n-20 years (3) c=2%; k=6%; n-5years (4) c= 5%; k=8%; n-30 years (5) c-6%; k-2%, n-10 years (6) c= 1%; k=3%; n-15 years II) (a) For the above scenarios, utilize the Excel spreadsheet function, PRICE, to determine the bond market price (b) For the following scenarios, determine the Yield to Maturity by utilizing the Excel financial function, YIELD: (1) c-4% ; PB = $110.50 ; n-10years (2) c-290 ; PB-$92.25 ; n 20 years (3) c-790 ; PB-$130.75 ; n-6 yearsExplanation / Answer
Bond price is the sum of present value of all the coupon and present value of maturity amount
Present value of the coupon = P*(1-(1+r)^-n)/r
Present Value of maturity amount = CF/(1+r)^n
Value of bond =Present value of the coupon +Present Value of maturity amount
Since Par value of the bond is not given , I assume it $100 andcoupon is paid annually
1) Present value of the coupon = 4*(1-(1+0.05)^-10)/0.05=$30.89
Present Value of maturity amount = 100/(1+0.05)^10= $61.39
Value of bond = $30.89+61.39= $92.28
2)
Present value of the coupon = 7*(1-(1+0.03)^-20)/0.03=$104.14
Present Value of maturity amount = 100/(1+0.03)^20= $55.37
Value of bond = $104.14+55.37= $159.51
3)
Present value of the coupon = 2*(1-(1+0.06)^-5)/0.06=$8.42
Present Value of maturity amount = 100/(1+0.65)^5= $74.73
Value of bond = $8.42+74.73= $83.15
4)
Present value of the coupon = 5*(1-(1+0.08)^-30)/0.08=$56.29
Present Value of maturity amount = 100/(1+0.08)^30= $9.94
Value of bond = $56.29+9.94= $66.23
5)
Present value of the coupon = 6*(1-(1+0.02)^-10)/0.02=$53.90
Present Value of maturity amount = 100/(1+0.02)^10= $82.03
Value of bond = $53.90+82.03= $135.93
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