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a. What is the bond's yield to maturity?b. What is the bond's 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?Years to maturity:Coupon rate:Par value:Periods per year:Current pricePeriodic payment:Periods to maturity:Call price:Years till callable:Basic Input Data:Current yield =Note that this is an economic loss, not a loss for tax purposes.Here we can again use the Rate function, but with data related to the call.Periods till callable:NOW ANSWER THE FOLLOWING NEW QUESTIONS:Value of bond if it's not called:Value of bond if it's called:Value of Bond If:Not calledCalledstatement to determine which value is appropriate:Actual value,consideringcall likehood:Settlement (today)MaturityCoupon rateFrequency (for semiannual)Basis (360 or 365 day year)Current price (% of par)Yield to Maturity:Basic info:Redemption (% of par value)Nominal market rate, r:Rate, rWe can use the two valuation formulas to find values under different r's, in a 2-output data table, and then use an IFThe YTC is lower than the YTM because if the bond is called, the buyer will lose the difference between the call price and the current price in just 4 years, and that loss will offset much of the interest imcome. Note too that the bond is likely to be called and replaced, hence that the YTC will probably be earned.Refer to this chapter's Tool Kit for information about how to use Excel's bond valuation functions. The model finds the price of a bond, but the procedures for finding the yield are similar. Begin by setting up the input data as shown below:A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.)Annualized Nominal YTM =This is a nominal rate, not the effective rate. Nominal rates are generally quoted.(Answer) Hint: This is a nominal rate, not the effective rate. Nominal rates are generally quoted. Hint: Write formula in words. Hint: Cell formulas should refer to Input SectionPeridodic YTC =Annualized Nominal YTC =e. How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.) The bond would not be called unless r<coupon.f. Now assume the date is 10/25/2010. Assume further that a 12%, 10-year bond was issued on 7/1/2010, pays interest semiannually (January 1 and July 1), and sells for $1,100. Use your spreadsheet to find the bond’s yield.Hint: Use the Yield function. For dates, either refer to cells in Basic Info above, or enter the date in quotes, such as "10/25/2010".Numeric answers in cells will not be accepted.Except for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Chapter 5. Ch 05 P24 Build a ModelPeriodic YTM =Spring 1, 2013
Chapter 5. Ch 05 P24 Build a Model

Chapter 5. Ch 05 P24 Build a Model

Question # 00001829 Posted By: neil2103 Updated on: 10/02/2013 01:56 AM Due on: 10/23/2013
Subject Accounting Topic Accounting Tutorials:
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A 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The bond sells for $1,100. (Assume that the bond has just been issued.)

a. What is the bond’s yield to maturity?
b. What is the bond’s current yield?
c. What is the bond’s capital gain or loss yield?
d. What is the bond’s yield to call?
NOW ANSWER THE FOLLOWING NEW QUESTIONS:
e. How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)

f. Now assume the date is 10/25/2010. Assume further that a 12%, 10-year bond was issued on 7/1/2010, pays interest semiannually (January 1 and July 1), and sells for $1,100. Use your spreadsheet to find the bond’s yield.

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problem_gamma.xlsx (14.98 KB)
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  1. neil2103
    Tutorial # 00001675 Posted By: neil2103 Posted on: 10/02/2013 01:57 AM
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    The solution of Ch 05 P24 Build a Model...
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    Chapter_5_Build_a_Model_Spreadsheet_sol.xlsx (16.22 KB)
  2. neil2103
    Tutorial # 00169125 Posted By: neil2103 Posted on: 01/17/2016 05:35 PM
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    The solution of Ch 05 P24 Build a Model and Chapter 4- P35 Build a Model...
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    Chapter_4-_P35_Build_a_Model_(1).xlsx (46.54 KB)
    Chapter_5_Build_a_Model_Spreadsheet_sol.xlsx (16.22 KB)
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