Question

EXCEL The FAMA Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1000 face value at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1-year. What will be the value of each of these bonds when the going rate of interest (yield to maturity) is:

A) 8%
B) 12%
Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1-year)?

Answer 1

A)

8%

Bond L = $1,171.19

Bond S = $1,018.52

12%

Bond L = $863.78

Bond S = $982.14

Step-by-step explanation:

Price can be calculate by using PV function in excel as follow

=PV(rate, nper, pmt, [fv])

Where

Rate = yield to maturity

nper = numbers of years to maturity

pmt = coupon payment

fv = maturity value

The prices are calculated using the PV function and working is attached with this answer

A Formula sheet is also attached for your reference.