An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures
ID: 2775154 • Letter: A
Question
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.4%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.
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 of the following years to maturity. Round your answer to the nearest cent.
$
PLEASE EXPLAIN COMPLETELY!!
Years to Maturity Price of Bond C Price of Bond Z 4 $ $ 3 $ $ 2 $ $ 1 $ $ 0 $$
PLEASE EXPLAIN COMPLETELY!!
Explanation / Answer
Face value (FV) Coupon rate Number of compounding periods per year Interest per period (PMT) Number of years to maturity Number of compounding periods till maturity (NPER) Market rate of return/Required rate of return Market rate of return/Required rate of return per period (RATE) Bond price PV(RATE,NPER,PMT,FV) Years to Maturity Price of Bond C Price of Bond Z 4 $ 1,019.27 $ 698.12 3 $ 1,015.08 $ 763.74 2 $ 1,010.50 $ 835.54 1 $ 1,005.48 $ 914.08 0 $ 1,000.00 $ 1,000.00 Years to Maturity Price of Bond C Price of Bond Z 4 PV(9.4%,4,100,1000)*-1 PV(9.4%,4,0,1000)*-1 3 PV(9.4%,3,100,1000)*-1 PV(9.4%,3,0,1000)*-1 2 PV(9.4%,2,100,1000)*-1 PV(9.4%,2,0,1000)*-1 1 PV(9.4%,1,100,1000)*-1 PV(9.4%,1,0,1000)*-1 0 PV(9.4%,0,100,1000)*-1 PV(9.4%,0,0,1000)*-1
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