FINC 3304 – Business Finance

Mini Project 2

Bond Valuation

The goal of this mini project is to explore the topic of bond valuation. The mini project requires you to work

in Excel with the provided spreadsheet. Be sure to fill in the yellow boxes in the Excel file for full credit. In

addition, type up a report in Word with an introduction (description of the mini project), findings (answer

assignment questions, plots, etc.), and conclusion (summary). Your grade will depend on both quantity and

quality. Upon completion, please submit both your Word report and Excel file to blackboard. Each question

(A, B, C, D, E, F, and G) is worth 10 points (total of 70 points), the report 15 points, and the Excel file 15

points.

Bond Valuation

Assume that a 25-year, 9% coupon bond with semiannual payments has a par value of $1,000 and may be

called in 5 years at a call price of $1,040. The bond currently sells for $1,100 (assume that the bond has just

been issued). Employ the excel file to answer the following questions:

Part 1: Bond Yield

A) Calculate the Periods to Maturity, Periodic Payment, and Periods until Callable (10 Points)

B) Calculate the periodic Yield to Maturity using the Excel function and the Annualized Yield to

Maturity. The Annualized Yield is equal to the periodic YTM times the number of periods (10

Points)

C) Calculate the Annual Coupon Payment, Current Price, and the Current Yield. The current yield

is defined as Annual Coupon payment/Current Price (10 Point)

D) Calculate the Capital Gain or Loss Yield. Capital Gain or Loss Yield = Annualized YTM – Current

Yield (10 Points)

E) Calculate the Periodic Yield to Call using the Excel function and the Annualized Yield to Call (10

Points)

Part 2: Relation between Bond Value and Market Interest Rate

F) Calculate the Bond Value using the Excel function and create a bond value table (be sure to fill

in the table) for different interest rates using the Excel function (10 Points)

G) Graph the actual bond value considering call likelihood (y-axis) against the annual market

interest rate (x-axis). Label the y-axis, x-axis, and chart title (10 Points)

Excel Note: If you want to lock in a cell reference, use the $ symbol. For example, if you would like to keep

the value of cell A5 constant for use in a formula, reference it as $A$5.