Question

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 18 years, while Bond S matures in 1 year.

Assume that only one more interest payment is to be made on Bond S at its maturity and that 18 more payments are to be made on Bond L.

1. What will the value of the Bond L be if the going interest rate is 5%? Round your answer to the nearest cent.
   $   
   
   What will the value of the Bond S be if the going interest rate is 5%? Round your answer to the nearest cent.
   $   
   
   What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent.
   $   
   
   What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent.
   $   
   
   What will the value of the Bond L be if the going interest rate is 11%? Round your answer to the nearest cent.
   $   
   
   What will the value of the Bond S be if the going interest rate is 11%? Round your answer to the nearest cent.
   $   

Answer 1

Use PV function in EXCEL to find the price of the bond

=PV(rate,nper,pmt,fv,type)

1. Bond L:

rate=5%

nper=18 years

pmt=coupon=(12%*1000)=120

fv=1000

=PV(5%,18,120,1000,0)=$1818.27

Bond S:

nper=1 year

=PV(5%,1,120,1000,0)=$1066.67

2. Bond L:

rate=8%

=PV(8%,18,120,1000,0)=$1374.88

Bond S:

nper=1 year

=PV(8%,1,120,1000,0)=$1037.04

3. Bond L:

rate=11%

=PV(11%,18,120,1000,0)=$1077.02

Bond S:

nper=1 year

=PV(11%,1,120,1000,0)=$1009.01