If your company needs to raise some cash and has determined that issuing stock isn’t in its best interests, you might borrow money by issuing bonds. In essence, you’re betting that you can earn a higher rate of return than you pledge to pay bondholders. Once you know the parameters of the bond you’d like to issue, you can use the PRICE function to find the break-even issue price.
- [Instructor] If your company needs to raise some cash…and has determined that issuing stock…isn't in its best interest,…you might borrow money by issuing bonds.…Pricing bonds for sale is a tricky business.…In essence, you are betting that you can…earn a higher rate of return on the borrowed money…than you pledge to pay your bond holders.…Once you have the parameters of the bond you'd like to issue…you can use the Price function…to find the break even issue price.…I'll demonstrate how to perform this calculation.…My sample file is BondPrice_05_04,…and you can find it in the Chapter 5 folder…of the Exercise Files collection.…
To calculate a bond price,…you need to know several bits of information.…The first is the Settlement Date, and that is…the date that the investor…will take possession of the security.…Next is the Maturity Date,…and that is the date that the investment will end.…And you return…the principal plus any accumulated interest to the investor.…Next is Percent Coupon,…and that is the amount of interest that you pay…
- 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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