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ch01boc-model

# ch01boc-model - Chapter 1 BOC Question 5(ch01-M 5 Finance...

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Chapter 1, BOC Question 5 (ch01-M) 1/30/03 Click on the tab at the bottom, "Spreadsheet Model," to access the model itself. 5. Finance is all about valuation—how do we estimate asset values, and what can we increase them? We develop and use Excel models throughout the book. We start thi in this chapter with simple models used to value bonds, stocks, and capital budgeting Working through the model will give you a refresher in valuation plus a refresher (o preview) of Excel. The model can be accessed from the book’s CD or web site, Begin Chapter Models, and its filename is ch01-M. (The M is for "model". ch01-Q is the fil questions. If you have never used Excel at all, then you should not attempt to answer question, or if you do, you should not get frustrated if you have trouble with it.

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Worksheet for Chapter 1 BOC Questions (ch01-M) 1/30/03 Principal amount of bond: \$1,000 Years to maturity: 5 Coupon interest rate: 8.0% Annual interest: \$80 Market interest rate: 7.0% Time line of payments: 1 2 3 4 5 Interest \$80 \$80 \$80 \$80 \$80 Principal 1,000 Total CF \$80 \$80 \$80 \$80 \$1,080 The bond's value can be found in several ways, as shown below: Method #1. Find PV of interest and PV of principal, and sum them. PV of interest payments: \$328.02 PV of maturity payment: \$712.99 Just use algebra to find PV. Value of bond: \$1,041.00 Notes: 1. We could have used numbers, but we used cell references to provide greater flexibility.

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ch01boc-model - Chapter 1 BOC Question 5(ch01-M 5 Finance...

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