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The goal is to create a table for the rates or return on bonds of varying...

The goal is to create a table for the rates or return on bonds of varying maturities. The bond has a face value of $1000 and is bought at par with a coupon rate of 5%. After one year, the market yield on the bond changes to 9%.

On the table, show the current yield, the resale price P(t+1) the rate of capital gain and the rate of return for bonds is 1,2,3, 5 and 7 years to maturity.

Do a second table for the situation where market yields go from 9% to 5%.

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Answer #1

Price of the bond with different values of maturity will be calculated using Present Value of the future cash flows.

(PV function in excel is used)

Price of the bond 1000
Discount rate 9%
Coupon rate 5%
Simple yield Coupon/Price 5%
Maturity Price
1 963.30
2 929.64
3 898.75
5 844.41
7 798.68
Price of the bond 1000
Discount rate 5%
Coupon rate 9%
Simple yield Coupon/Price 9%
Maturity Price
1 1,038.10
2 1,074.38
3 1,108.93
5 1,173.18
7 1,231.45
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