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Chapter 4.
Ch04 P24 Build a Model
a.
What is the bond's yield to maturity?
Basic Input Data:
Years to maturity:
10
Periods per year:
2
Periods to maturity:
Coupon rate:
12%
Par value:
$1,000
Periodic payment:
Current price
$1,100
Call price:
$1,060
Years till callable:
4
Periods till callable:
YTM
=
quoted.
b.
What is the bond's current yield?
Current yield
=
c.
What is the bond's capital gain or loss yield?
Cap. Gain/loss yield =
d.
What is the bond's yield to call?
Here we can again use the Rate function, but with data related to the call.
YTC
=
quoted.
NOW ANSWER THE FOLLOWING NEW QUESTIONS:
Nominal market rate, r:
12%
Value of bond if it's not called:
Value of bond if it's called:
The bond would not be called unless r<coupon rate = 12%.
We can use the two valuation formulas to find values under different r's, in a 2output data table, and then use an IF
statement to determine which value is appropriate:
Value of Bond If:
Actual value,
Hint: Use function Wizard and pick IF function.
Not called
Called
considering
Rate, r
$0.00
$0.00
call likehood:
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
We can graph the above data to get another idea of the bond's price sensitivity.
Basic info:
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This note was uploaded on 03/27/2012 for the course FINA 3320 taught by Professor Picou during the Summer '12 term at Texas A&M University, Corpus Christi.
 Summer '12
 Picou

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