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)?

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hyderali230 hyderali230 · Answer 1 · 2021-06-13T17:14:50+02:00

Answer:

A)

8%

Bond L = $1,171.19

Bond S = $1,018.52

12%

Bond L = $863.78

Bond S = $982.14

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.

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