Bonds that issue coupons, or pay interest to investors are regular intervals, offer bondholders the option to invest their earnings elsewhere. Some issuers decide to offer zero coupon bonds, which only pay interest at the end of the investment period. A zero coupon bond sale lists the price and the payment due when the bond matures, but doesn’t usually list the investment’s interest rate.
- [Narrator] Bonds that issue coupons or pay interest…to investors at regular intervals offer bond holders…the option to invest their earnings elsewhere.…Some issuers decide to offer zero coupon bonds…which only pay interest at the end of the investment period.…A zero coupon bond sale does the price and payment…due when the bond matures, but doesn't usually…list the investment's interest rate.…You can calculate that rate for yourself…using the rate function.…I'll demonstrate how to calculate this value…using the Rate_01_07 workbook, which you can find…in the chapter one folder of your…exercise files collection.…
To calculate the effective rate of this investment,…I need to know several things.…The first is the number of periods.…So that is 48, that's in cell C3…and we're assuming monthly payments.…Payment each period is in C4…and that is an outflow of 1500.…The present value is 3600.…Future value is zero, so that means there won't be…any money left over at the end of the the investment.…
Type indicates when the payment is made,…
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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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