M EDT Video Excel Online Structured Activity: Bond valuation An investor has two

Question

M EDT Video Excel Online Structured Activity: Bond valuation An investor has two bonds in her portfolio, Bond C and Bond Z. Each band matures in 4 years, has a face value $1,000, and hasa yì dto maturity of 94% Bond C pays a l 1.5% annual co pon, while Bond zi a zero coup bond. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform th required analysis to answer the questions below. Assuming that the yield to maturity of each bond remains at 9.4% over the next 4 years, calculate the price of the bonds at each to the nearest cent. of the following years to maturity. Do not round intermediate calculations. Round your answers Years to Maturity Price of Bond C Price of Bond Z 0 Check My Work Reset Problen Back Net

Explanation / Answer

Note: Bond value is calculated as present value of future expected cashflows. Hence first identify future cash flows and compute present value of cashflow in each year taking YTM as discounting rate. In Year bond value will be sum of present value of cashflow from year 1 to year 4, in year 2 bond value will be sum of present value of cashflow from year 2 to year 4 and so on....

Bond C Bond Z Length of maturity in years 4 4 Face Value $1,000 $1,000 Yield To Maturity 9.40% 9.40% Annual Coupon 11.50% 0.00% Years To Maturity Price of Bond C($) Price of Bond Z($) Formulas 4 1067.41 698.10 Please see working note below 3 962.29 698.10 2 866.21 698.10 1 778.38 698.10 0 1115.00 1000.00 Working Note: 1)BOND C Year Cash Flow PVF@9.4% Present Value 1 115 0.9141 105.1215 2 115 0.8355 96.0825 3 115 0.7637 87.8255 4 1115 0.6981 778.3815 1067.411 2)BOND Z Year Cash Flow PVF@9.4% Present Value 1 0 0.9141 0 2 0 0.8355 0 3 0 0.7637 0 4 1000 0.6981 698.1 698.1

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