Diana Voorman, portfolio manager at Gigantico Inc. is looking at two different b
ID: 2566216 • Letter: D
Question
Diana Voorman, portfolio manager at Gigantico Inc. is looking at two different bonds and intends to purchase only one of them for her firm's intermediate bond portfolio. The first bond is from The Zelio Film Company.
* The ask price is 93.25 firm.
* The bond was issued on February 15th, 2017 and matures on February 15th, 2027.
* The bond has a coupon rate of 7.50% payable on a semiannual basis.
* The face value of the bonds is $10,000 and the required rate of return for similar bonds is 8.28% as determined by Diana's investment committee.
* If purchased, the bond would settle on May 1st, 2017
a) Analyze the bond and calculate its respective intrinsic values. Use the Excel "Formulas" then "Financial" drop down menu, use the PRICE function to solve for the intrinsic value.
b) With the expected settlement date of May 1st, 2017, calculate the amount of accrued interest that Gigantico would pay upon acquiring the bond. Alas, the Excel function here requires manipulating the date format and a workaround, so the recommendation is to manually calculate being aware of the "Basis" information and when the bond was issued, or last paid interest.
c) Evaluate the bonds and determine the yield to maturity of both bonds based on the current price for the bonds.
Provide Excel syntax (formulas)
Explanation / Answer
a) Intrinsic value = PRICE(B3,C3,7.5%,8.28%,100,2,) = $94.76
where , B3 = 02/15/2017 C3 = 02/15/2027 (CELL REFERENCES)
b) =ACCRINT(B3,B4,B5,7.5%,10000,2,0,) = 158.33
B3 = 2/15/2017
B4 = 6/1/2017
B5 = 5/1/2017
c) The other bond data is not given in the sum . Kindly upload that portion as a new qs.
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