Comparing coupon bonds with different investment periods can be difficult. However, there is a method that you can use to calculate a common value that lets you evaluate a bond based on its sensitivity to changes in its yield. In Excel, you implement that method using the DURATION function. You can use the DURATION function to discover how sensitive your investment is to changes in its yield.
- [Narrator] Comparing coupon bonds…with different investment periods can be difficult.…However, there is a method that you can use…to calculate a common value that lets you…evaluate a bond based on its sensitivity…to changes in its yield.…In Excel, you implement that method…using the duration function.…I'll demonstrate how to use it in this movie.…My sample file is CalculatingDuration_04_07…which is a sample file that you can find…in the Chapter04 folder of your Exercise Files collection.…I need to know six different bits of information…to perform a calculation for a particular security.…
The first is the settlement date,…and that is the date that you actually take possession…of the security.…Next is the maturity date,…and that is the date that the investment ends.…That's in C4.…In C5 is the coupon interest.…That is the amount of interest you receive…with each coupon payment.…In C6 is the yield.…That is the annual percentage appreciation…of the investment, and that is independent…of coupon interest.…Frequency is the number of coupons paid per year.…
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- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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