Microsoft Office Tutorials and References
In Depth Information
Bond Calculations
1. Compute the present value of three years of rent payments.
2. The second three years is the same as the preceding deferred start example.
The present value of its payments are computed, and that becomes the future value
argument to a different PV function. That future value is discounted over a three-year
deferred period (while the \$5,000 rent payments are being made).
3. The last three years of payments are similarly discounted but this time over a six-year
deferral period.
Bond Calculations
Excel provides worksheet functions that you can use to calculate various aspects of bonds. A
bond is a financial instrument in which the buyer loans money to the bond issuer — usually a
corporation or a government. Many of the functions that deal with securities (such as bonds) are
beyond the scope of this topic. However, examples of some of the more common functions are
provided in this section.
The examples in this section can be found on the companion CD-ROM in the file named
bond calculations.xlsx .
Bonds have certain properties that are worth reviewing, mostly because those properties are also
arguments in many of the bond-related functions:
h settlement: The date the security is transferred to the buyer.
h maturity: The date the loan (represented by the bond) is repaid to the buyer.
h rate: Also known as the coupon, this is the interest rate the issuer is paying on the bond.
h yield: The rate of return the buyer receives, including the interest payments and the
discount.
h redemption: The amount the buyer receives at maturity, per \$100 of face value. In typical
cases, the buyer gets the face value, so this argument is 100.
h frequency: The number of times per year that interest is paid.
Pricing bonds
Bond issuers set the properties of the bond before it is issued based on current market
conditions. As market conditions change, the values of the bonds change as well.
For example, Company X issues bonds with a \$100 face value, a 10-year maturity date, and a 6%
interest rate paid twice per year:

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