Question

Please explain how to do A&B in excel. a) What is the value of a 20-year, 12% semiannual coupon bond with a par value of $1000 if its required rate of return is 8%? b) What is the yield to maturity on an 8-year, 8% semiannual coupon bond selling for $900? What is the yield to maturity if the same 8-year, 8% semiannual coupon bond is selling for $1200? c) Draw a “normal” yield curve and explain the difference between a normal and an abnormal yield curve.

Answer 1

A-	value of bond	Using PV function in MS excel	PV(rate,nper,pmt,FV,type) rate = 8%/2 = 4% nper = 20*2 = 40 PMT = 1000*6% = 60 FV =1000 type = 0	PV(4%,40,60,1000,0)	($1,395.86)
B-	YTM	Using rate function in MS excel	rate(nper,pmt,pv,fv,type) = nper = 16% pmt = 1000*4% = 40 pv = 900 fv =1000 type = 0	RATE(16,40,-900,1000,0)	4.92%
	Annual YTM	4.92*2	9.84
	YTM	Using rate function in MS excel	rate(nper,pmt,pv,fv,type) = nper = 16% pmt = 1000*4% = 40 pv = -1200 fv =1000 type = 0	RATE(16,40,-1200,1000,0)	2.47%
	Annual YTM	2.47*2	4.94