This needs to be done in Excel (formulas). Also I need a summary of the question

Question

This needs to be done in Excel (formulas). Also I need a summary of the question (your thoughts).

A. Consider a bond with a settlement date of 12/12/1990. The bond has a face value of $100. The maturity of the bond is March 15, 2014. The coupon rate is 5.5%. If the yield to maturity of the bond is 5.34% (bond equivalent yield, semiannual compounding), what is the list price of the bond on the settlement date? What is the accrued interest on the bond? What is the invoice price of the bond?

B. Now suppose that the bond in the previous question is selling for $102. What is the bond’s yield to maturity? What would the yield to maturity be at a price of $102, if the bond paid its coupon only once a year?

Thank you.

Explanation / Answer

Part A

Price of the bond

Here ytm = rate = 5.34% . Since it is semi annual compunding, effective yield is (1+0.0534/2)^2-1 =0.0541 = 5.41%

Nper or number of periods = 7 years and 93 days = 7.25 years

Coupon =pmt=5.5%= 0.055

Hecne Price is given PV formula in excel

=PV(rate,nper,pmt,fv) = PV (0.0541,7.25,5.5,100) =100.53

Hence price of the bond is $100.53

Since Interest is paid on 15th March and 15 September (semi annual), the interest is accrued from 9/15/2006 to 12/12/2006 = 88 days Since Interest pyable yearly is 5.5, then for 88 days it will be 88/365*5.5 = $1.33

Hence Price of the bond on Invoice date is 100.53 +1.33 = $101.86

Part - B

To find yield. we use the rate formula is excel

=rate (nper,pmt,pv,fv) = rate(7.25,5.5,102,100) = 5.16%

Hence yield in this case is 5.16%

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