Homework SourseOut of the 5 questions I got only 1 right firm 3 years to ma
Out of the 5 questions, I got only 1 right, firm 3, years to maturity is 6. The other four I got wrong.
Applying Time Value of Money Concepts
Complete the missing information in the table below. Assume that all bonds pay interest semiannually.
Do not use negative signs with answer.
Round percentages to one decimal place (ex. 0.0345 = 3.5%).
Round all other values to the nearest whole number.
| Annual | Years to | Coupon | Issue | ||
|---|---|---|---|---|---|
| Yield | Maturity | Rate | Face value | Proceeds | |
| Firm 1 | 8.00% | 15 | 7.00% | $400,000 | $Answer |
| Firm 2 | 3.00% | 10 | 0.00% | $Answer | $631,100 |
| Firm 3 | 6.50% | Answer | 5.00% | $500,000 | $463,223 |
| Firm 4 | Answer % | 12 | 3.50% | $1,000,000 | $1,136,452 |
| Firm 5 | 0.80% | 20 | 2.00% | $600,000 | $Answer |
Solution
You can get accurate answers using Excel formula related to Time value of money.
Firm 1
For issue proceeds PV function of Excel is used
Its parameters are as follows :
Rate = 8%
Nper = 15
Pmt = (400000*7%)=280000
Fv = 400000
Now apply formula
=-PV(8%,15,28000,400000)
Now press enter you will get answer as 365762
Firm 2
To find Face value, FV function of Excel is used
Its parameters are as follows
Nper =10*2=20 (because it\'s zero - coupon bond)
Rate =3%/2=1.5%
Pv =-6311000
Pmt =0
Now apply formula
=FV(1.5%,20,0,-631100)
Now press enter you will get answer as 850000
Firm 4
To find annual yield, RATE formula of Excel is used
Its parameters are as follows
Nper =12
Pmt =(1000000*3.5%)=35000
Fv=1000000
Pv=-1136452
Now apply formula
Now press enter you will get answer as 2.2%
Firm 5
To find issue proceeds, PV function of Excel is used
Its parameters are as follows
Nper=20
Rate =0.8%
Pmt =(600000*2%)=12000
Fv=600000
Now apply formula
=-PV(0.8%,20,12000,600000)
Now press enter you will get answer as 732582
