Please refer to the excel table below. Assuming a bond just issued and the coupo
ID: 2335701 • Letter: P
Question
Please refer to the excel table below.
Assuming a bond just issued and the coupon and the yield are equal at 5%. After the bond issuance certain market conditions change and the bond has appreciated by 15%. What must the yield move to?
What if market conditions changed again and the bond is now trading at 15% below the original issuance amount. What yield would cause such a price?
Financial Analysis and Financial Risk Management Bonds and Bond Math Bond Issuance Issuance Date Current Date Maturity Coupon Current Trading Amount Yield to maturity 1,000 5-Jun-18 6-Jun-18 5 Years 5% 1,000.0 5.00% 2 50.0 3 50.0 4 50.0 5 50.0 50.0 Coupon Principal 1,000.0 Expected Cashflow PV @ Yield rate 50.0 47.6 50.0 45.4 50.0 43.2 50.01,050.0 41.1822.7 Sum of PV's Investment 1,000.0 (1,000.0) NPVExplanation / Answer
Base Information 15% Appreciation 15% depreciation Bond Issuance FV $1,000.00 $1,000.00 $1,000.00 Issuance Date 5-Jun-18 5-Jun-18 5-Jun-18 Current Date 6-Jun-18 6-Jun-18 6-Jun-18 Maturity = Period 5 5 5 Coupon 5.00% 5.00% 5.00% Coupon Payment $50.00 $50.00 $50.00 Current Trading Amount PV $1,000.00 $1,150.00 $850.00 Yield To Maturity 5.00% 1.83% 8.84% Rate(Period,Payment,-PV,Fv) As bond prices increase, bond yields fall As bond prices decrease, bond yields go up. Rate(5,50,-1150,1000) Rate(5,50,-850,1000) Base Information 15% Appreciation 15% depreciation Year Base Information 15% Appreciation 15% depreciation PV @ 5% PV @ 1.83% PV @ 8.84%% Present Value @5% Present Value @1.83% Present Value @8.84% 0 -$1,000.00 -$1,150.00 -$850.00 1 1 1 -$1,000.00 -$1,150.00 -$850.00 1 $50.00 $50.00 $50.00 0.9524 0.9820 0.9188 $47.62 $49.10 $45.94 2 $50.00 $50.00 $50.00 0.9070 0.9643 0.8441 $45.35 $48.22 $42.21 3 $50.00 $50.00 $50.00 0.8638 0.9470 0.7756 $43.19 $47.35 $38.78 4 $50.00 $50.00 $50.00 0.8227 0.9299 0.7126 $41.14 $46.50 $35.63 5 $1,050.00 $1,050.00 $1,050.00 0.7835 0.9132 0.6547 $822.70 $958.84 $687.45 NPV $0.00 $0.00 $0.00
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