When you create a bond for sale, you need to set its price. You're borrowing money by selling bonds rather than stock, so you need to know the break even price. If you know the start and end date, the interest you’ll pay, and the redemption value, you can use the PRICEDISC function to calculate the bond’s price.
- [Instructor] When you create a bond for sale,…you need to set its price.…If you know the start and end date…as well as the discount rate,…that is the amount of money that you can make…from a risk-free investment,…then you can calculate the price per $100 of redemption.…In this movie I will show you…how to perform this type of calculation.…My sample file is DisocountedSecurityPrice_05_05…and you can find it in the Chapter05 folder…of your exercise files collection.…In this case, we are creating a bond…that doesn't pay periodic interest.…
Instead we accept the principle payment…from the investor,…and then at the maturity date,…we return a redemption value of $100.…And what we're trying to do…is to calculate the break-even price for that investment…given the terms.…Let's go ahead and review those.…The first is the settlement date,…that's in cell C3.…And then, that's the date that the…investor actually takes possession of the security.…So for example, if we had bonds of our own…that we thought were risk-free,…or other investments…
- 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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