Question

#1. Expected Rate of Return: Par Value : $1,000 Coupon Rate : 8% Maturity period : 5 Years Market Price : 1,110 Instructions: Please using Trial and Error to find the expected rate of return with PVIFA and PVIF Table. # 2 : Duration Duration of a zero-coupon bond equals its maturity. It is only for zero-coupon bonds that duration and maturity are equal. Indeed, for any bond that pays some cash flows prior to maturity, its duration will always be less than its maturity. Duration of a 5 years bond with 8% coupon paid semiannually and 6% yield. #3: Bond Valuation You are considering the purchase of $1,000 face value bond that pay 6% coupon interest per year, with the coupon paid semiannually. The bond matures in 8 years. If the required rate of return on this bond is 4%. what is the market value of the bond.

Answer 1

1.
FV = 1000
Nper = 5
PMT = 1000 * 8% = 80
PV = 1110

Expected rate of return can be calculated by using the following excel formula:
=RATE(nper,pmt,pv,fv)
=RATE(5,80,-1110,1000)
= 5.43%

Expected rate of return = 5.43%

2.

Excel formula:

3.

FV = 1000
Nper = 8 * 2 = 16
PMT = 1000 * 6% / 2 = 30
Rate = 4% / 2 = 2%

Market value of the bond can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(2%,16,-30,-1000)
= $1,135.78

Market value of the bond = $1,135.78