BOND VALUATIONS
Instructions:
This module examined the variables that determined bond valuations and some of their
relationships. In this assignment you are asked to develop a voice-over PowerPoint presentation
on bond valuation explaining the variables and calculations involved. Show your step-by-step
calculations and explanations clearly in your submission. The following may act as a guide when
developing your PPT.
Exercise 1: Bond Variables
Face Value (P): $1,000
Coupon Rate (I): 7% (0.07 as a decimal)
Time to Maturity (T): 10 years
Yield to Maturity (Y): 6% (0.06 as a decimal)
Calculate the value of the bond using the bond valuation formula discussed in the reading. Show
all your calculations step-by-step and provide the final bond value.
To calculate the value of the bond, we need to find the present value of all future cash flows
(coupon payments) and the face value (par value) at maturity.
1. Calculate the coupon payment:
Coupon Payment=Face Value× Coupon Rate=$1,000×0.07=$70
2. Calculate the present value of coupon payments:
The present value of an annuity (series of equal payments) can be calculated using the formula
1−(1+Y )−T
PV coupons=C× ( )
y
Where:
C is the coupon payment
Y is the yield to maturity (discount rate)
T is the number of periods (years)
−10
1−(1+ 0.06)
PV coupons=70× ( )
0.06
1−(1 .06)−10
PV coupons=70× ( )
0.06
, 1−0.5584
PV coupons=70× ( )
0.06
0.4416
PV coupons=70× ( )
0.06
PV coupons=$70×7.36≈$515.20
3.Calculate the present value of the face value
The present value of the face value is calculated using the formula
𝑃𝑉 face value=𝑃/(1+𝑌) ^t
Where
P is the face value
Y is the yield to maturity (discount rate)
T is the number of periods (years)
𝑃𝑉 face value=1000/ (1+0.06) ^10
𝑃𝑉 face value=1000/ (1.06) ^10
𝑃𝑉 face value=1000/ 1.7908
≈$558.39
Finally Sum the present values:
Bond Value=$515.20+$558.39=$1,073.59
Bond value= $1,073.59
Exercise 2: Proving the Answer
Year Cash flows PVIF (0.06, n) PV of CFS
1 $70.00 0.9434 $66.04
2 $70.00 0.8900 $62.30
Instructions:
This module examined the variables that determined bond valuations and some of their
relationships. In this assignment you are asked to develop a voice-over PowerPoint presentation
on bond valuation explaining the variables and calculations involved. Show your step-by-step
calculations and explanations clearly in your submission. The following may act as a guide when
developing your PPT.
Exercise 1: Bond Variables
Face Value (P): $1,000
Coupon Rate (I): 7% (0.07 as a decimal)
Time to Maturity (T): 10 years
Yield to Maturity (Y): 6% (0.06 as a decimal)
Calculate the value of the bond using the bond valuation formula discussed in the reading. Show
all your calculations step-by-step and provide the final bond value.
To calculate the value of the bond, we need to find the present value of all future cash flows
(coupon payments) and the face value (par value) at maturity.
1. Calculate the coupon payment:
Coupon Payment=Face Value× Coupon Rate=$1,000×0.07=$70
2. Calculate the present value of coupon payments:
The present value of an annuity (series of equal payments) can be calculated using the formula
1−(1+Y )−T
PV coupons=C× ( )
y
Where:
C is the coupon payment
Y is the yield to maturity (discount rate)
T is the number of periods (years)
−10
1−(1+ 0.06)
PV coupons=70× ( )
0.06
1−(1 .06)−10
PV coupons=70× ( )
0.06
, 1−0.5584
PV coupons=70× ( )
0.06
0.4416
PV coupons=70× ( )
0.06
PV coupons=$70×7.36≈$515.20
3.Calculate the present value of the face value
The present value of the face value is calculated using the formula
𝑃𝑉 face value=𝑃/(1+𝑌) ^t
Where
P is the face value
Y is the yield to maturity (discount rate)
T is the number of periods (years)
𝑃𝑉 face value=1000/ (1+0.06) ^10
𝑃𝑉 face value=1000/ (1.06) ^10
𝑃𝑉 face value=1000/ 1.7908
≈$558.39
Finally Sum the present values:
Bond Value=$515.20+$558.39=$1,073.59
Bond value= $1,073.59
Exercise 2: Proving the Answer
Year Cash flows PVIF (0.06, n) PV of CFS
1 $70.00 0.9434 $66.04
2 $70.00 0.8900 $62.30
