Into the into the equation so if it’s a -percent coupon rate that means on an annual basis that pays hundred forty dollars a year so we’re going to plug in c c by to write coupon dollars I’m also going to take our by two so if the required return is sixteen percent they -percent I’m going to plug in . wait for our again r by and then also tee times too and so if this is a seven-year bond seven years to maturity going to take t x and plug-in for the tea and I get a bond value of nineteen seventy dollars sense now this is a discount bond why is that well but that would say that interest rates have gone up my bond.
was paying a -percent a -percent environment and so if people were to buy my bond they would pay me less than a thousand dollars that’s a relationship you have to understand if interest rates go up bond values going down how do you solve for this little are this yield to maturity let’s say you’re given the bond-price you’re giving the coupon your given to your given F and so on you’re solving for R there are three hours in the equation we basically do it by trial and error again understand the mathematics first second be able to plug it into a scientific calculator the big long formula with all the attendant parentheses and and correct.
mathematics plug it into your scientific calculator next plug it into your financial calculator which has functions built for this purpose and then finally be able to type it into Excel both in longhand which is the long hand formula with all the attendant parentheses and then also begin to understand as you become a more intermediate excel user understand the Excel functions.
That are built and and already can into excel and you can solve these problems very quickly just need to learn the syntax in taxes character called out very carefully in our books is very very easy once you learn the syntax of excel and you can get selfies bond problems for any of the five variables are very easy so we do trial now we can get smartly in our can’t we because we know that if the price of the bond is less than a thousand dollars were given the price.
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