BaM-Ch04 - Chapter 4. Ch04 P24 Build a Model Rework Problem...

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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 2-output 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.

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