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In: Finance

This is your first week at a mutual fund as an analyst. Your boss asked you...

This is your first week at a mutual fund as an analyst. Your boss asked you to evaluate the
price risk of two 30-year bonds – Bond A and Bond B.
Bond A has a coupon rate of 4%, while Bond B has a coupon rate of 8%. Both bonds pay
their coupons semi-annually

.
A) Construct an Excel spreadsheet showing the prices of each of these bonds for yields to
maturity ranging from 1% to 15% at intervals of 1%. Column A should show the yield
to maturity (ranging from 1% to 15%), and columns B and C should compute the prices
of the two bonds (using Excel’s PV function) at each interest rate.


B) In columns D and E, compute the percentage difference between the bond price and its
value when the yield to maturity is 6% (initial yield to maturity) for bonds A and B,
respectively [ = {(Price (at current YTM) – Price (at initial YTM of 6%)}/ Price (at
initial YTM of 6%)].

Face value $1,000.00
Coupon rate bond A 4.00%
Coupon rate bond B 8.00%
Time 30.00 Years
Initial Yield to Maturity 6.00%

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