Question: (a) Explain briefly how you would price the following German government bond: it has a coupon of 1.4% payable annually, has a term to maturity of 6 years, and currently yields 1.7%. What Excel formula would you use to calculate the bond's price?
(b) What would happen to the bond's YTM if (i) the coupon rate were lower and (ii) the bond's price were lower? Explain your answers.
(c) Explain the advantages of using the XIRR function rather than the IRR function for calculating a bond's yield to maturity. Write out the standard format of the XIRR function.