The focus of this problem is computing the theoretical, or intrinsic, value of a bond. This problem also introduces (to those who may not have used it before) the IF statement, a very useful spreadsheet application. We set up the spreadsheet to deal with a bond whose original maturity was ten years, with interest paid semiannually. We will look directly at remaining periods until maturity of 8, 4, 2, and 1 years, but our objective is to have a versatile tool that lets us easily compare values for periods remaining until maturity ranging from ½ year to 10 years, and for different current required rates of return (yields to maturity). Assume that the bond has a $1,000 par value and an annual coupon interest rate of 9%. Your assignment is to compute the bond's theoretical value under the following sets of conditions (12 combinations in all):

First Sheet: 10.25% effective yield to maturity, for 8, 4, 2, and 1 years remaining
Second Sheet: 9.2025% effective yield to maturity, for 8, 4, 2, and 1 years remaining
Third Sheet: 8.16 % effective yield to maturity, for 8, 4, 2, and 1 years remaining

pur-new-sol

Related Questions