Question

H19 X fx ESEF 1 Given the following... Show in excel what happens when the bond is sold at par value. 2 Face Value $2,000 3 Yearly Interest Rate 10% 4 Coupon Rate 5% 5 Frequency of Payments Semi-Annual 6 Payments/year 7 Number of Payments 8 Maturity Date 1-Jul-50 9 a. Show how the order of YTM, Coupon rate and Current Yield changes when the bond is sold at a discount. 10 b. Show how the order of YTM, Coupon rate and Current Yield changes when the bond is sold at a premium. 11 c. Show what happens when the bond is sold at par value. 12 13 Price @ Jul-01-2020 14 YTM (function) 15 Current Yield 16 Coupon Rate

Answer 1

I NVEST 20 No: Debe: Santonsentono Solution s ca) Order OLYTM when the Bond Coupon rates_current yello is sold ar a discount Here, Bond is sold ar discount in : Face value = $2,000 (siven) Coupon rate - 5 % ( goven) paoce @ July 2020 : $ 2000 -5% - Ś_1,900 Sche r info.5 calculatoon_of_YTM INTMi is at gield to Matunity that is the gield ar which the ner presear value of the bond becomes hero. It is also can be caued as internal rate of return. This can bé calculated as follows: wield & & coupon rate Ton amour Redeemable - L vakie Issue pace T life of Bond Redeemable value + Issue price CS Scanned with CamScanner

Page No : Date: Coupon rate -5% [ 2.5% semi annually I Redeemable value = $2000 Issue price $1,900 life = 60 yeam (sem annual) YTM, iis si só + $2000 - $ 1900.] 60 2000 + 1900 $51.667 Iriou = 1950 2.65 % currear. 100 Yield Coupon Amoun Luncurrenr niacker Opiser price in wat - $ 21000-X. 2.5% Lx 100 1900 2.63 % CS Scanned with CamScanner

Page No. Dete: . When the Bold es soldosar Ponnum For e Coupon Amount = (st 2000 x 5% ) $ 100 annuallys therefore sso semi annually th Redeemable value = $2000 Issue pnice z nes sl 2100 Carpbemium) løjes 360 years. Are YTM = $50 + $ 2000 -2100 4: 2000 + 2100 2.3575% 48.33 2050 I current gield = 850 xlos $ 2100 2.3809% Scarred withi Cariscariner

(C) when i Bond is sold at pas value Youpon Amounr. E $50 Redeemable values & 2000 songs $ 2000 22.60 years. cat Issue pnce YTM $ 50 of zoo-loro, 60 - 2000 12000 E 016 & 50. xloo 9:52 68200 current yield = 50 xloo = 25% 2000 |lcs scared with CamScanner