Problems

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Skill-Building Problems

1. A bond has a face value of $1,000, an annual coupon rate of 4.60%, an yield to maturity of 8.1%,

makes 2 (semiannual) coupon payments per year, and 10 periods to maturity (or 5 years to

maturity). Determine the price of this bond based on the Annual Percentage Rate (APR)

convention and the price of this bond based on the Effective Annual Rate (EAR) convention.

2. Determine the relationship between bond price and yield to maturity by constructing a graph of

the relationship.

3. Given four of the bond variables, determine the fifth bond variable.

(a.) Given Number of Periods to Maturity is 10, Face Value is $1,000, Discount Rate / Period is

3.2%, and Coupon Payment is $40, determine the Bond Price.

(b.) Given Number of Periods to Maturity is 8, Face Value is $1,000, Discount Rate / Period is

4.5%, and the Bond Price is $880.00, determine the Coupon Payment.

(c.) Given Number of Periods to Maturity is 6, Face Value is $1,000, Coupon Payment is $30,

and the Bond Price is $865.00, determine Discount Rate / Period.

(d.) Given Number of Periods to Maturity is 8, Discount Rate / Period is 3.8%, Coupon Payment

is $45, and the Bond Price is $872.00, determine Face Value.

(e.) Given Face Value is $1,000, Discount Rate / Period is 4.3%, Coupon Payment is $37, and

the Bond Price is $887.00, determine the Number of Periods to Maturity.

4. Perform instant experiments on whether changing various inputs causes an increase or decrease in

the Bond Price and by how much.

(a.) What happens when the annual coupon rate is increased?

(b.) What happens when the yield to maturity is increased?

(c.) What happens when the number of payments / year is increased?

(d.) What happens when the face value is increased?

(e.) What is the relationship between the price of a par bond and time to maturity?

(f.) What happens when the annual coupon rate is increased to the point that it equals the yield

to maturity? What happens when it is increased further?

Live In-class Problems.

7. Given the partial Basics spreadsheet BondbasZ.xls, complete step 4 Calculate Bond Price using

the Cash Flows.

8. Given the partial By Yield To Maturity spreadsheet BondyieZ.xls, do steps 2 Enter Yield To

Maturity (Annualized), 3 Calculate Discount Rate / Period, and 4 Calculate Bond Price.

9. Given the partial Dynamic Chart spreadsheet BonddynZ.xls, do steps 8 Calculate the Number

of Periods to Maturity, 9 Calculate Bond Price of a Coupon Bond, and 10 Calculate Bond

Price of a Par Bond.

10. Given the partial System of Five Bond Variables spreadsheet BondsysZ.xls, complete step 2

Calculate Number of Periods to Maturity using the NPER function, complete step 3 Calculate

Face Value using the FV function, complete step 4 Calculate Discount Rate / Period using the

RATE function, complete step 5 Calculate Coupon Payment using the PMT function, and

complete step 6 Calculate Bond Price using the PV function.

Skill-Building Problems

1. A bond has a face value of $1,000, an annual coupon rate of 4.60%, an yield to maturity of 8.1%,

makes 2 (semiannual) coupon payments per year, and 10 periods to maturity (or 5 years to

maturity). Determine the price of this bond based on the Annual Percentage Rate (APR)

convention and the price of this bond based on the Effective Annual Rate (EAR) convention.

2. Determine the relationship between bond price and yield to maturity by constructing a graph of

the relationship.

3. Given four of the bond variables, determine the fifth bond variable.

(a.) Given Number of Periods to Maturity is 10, Face Value is $1,000, Discount Rate / Period is

3.2%, and Coupon Payment is $40, determine the Bond Price.

(b.) Given Number of Periods to Maturity is 8, Face Value is $1,000, Discount Rate / Period is

4.5%, and the Bond Price is $880.00, determine the Coupon Payment.

(c.) Given Number of Periods to Maturity is 6, Face Value is $1,000, Coupon Payment is $30,

and the Bond Price is $865.00, determine Discount Rate / Period.

(d.) Given Number of Periods to Maturity is 8, Discount Rate / Period is 3.8%, Coupon Payment

is $45, and the Bond Price is $872.00, determine Face Value.

(e.) Given Face Value is $1,000, Discount Rate / Period is 4.3%, Coupon Payment is $37, and

the Bond Price is $887.00, determine the Number of Periods to Maturity.

4. Perform instant experiments on whether changing various inputs causes an increase or decrease in

the Bond Price and by how much.

(a.) What happens when the annual coupon rate is increased?

(b.) What happens when the yield to maturity is increased?

(c.) What happens when the number of payments / year is increased?

(d.) What happens when the face value is increased?

(e.) What is the relationship between the price of a par bond and time to maturity?

(f.) What happens when the annual coupon rate is increased to the point that it equals the yield

to maturity? What happens when it is increased further?

Live In-class Problems.

7. Given the partial Basics spreadsheet BondbasZ.xls, complete step 4 Calculate Bond Price using

the Cash Flows.

8. Given the partial By Yield To Maturity spreadsheet BondyieZ.xls, do steps 2 Enter Yield To

Maturity (Annualized), 3 Calculate Discount Rate / Period, and 4 Calculate Bond Price.

9. Given the partial Dynamic Chart spreadsheet BonddynZ.xls, do steps 8 Calculate the Number

of Periods to Maturity, 9 Calculate Bond Price of a Coupon Bond, and 10 Calculate Bond

Price of a Par Bond.

10. Given the partial System of Five Bond Variables spreadsheet BondsysZ.xls, complete step 2

Calculate Number of Periods to Maturity using the NPER function, complete step 3 Calculate

Face Value using the FV function, complete step 4 Calculate Discount Rate / Period using the

RATE function, complete step 5 Calculate Coupon Payment using the PMT function, and

complete step 6 Calculate Bond Price using the PV function.