The goal of this mini project is to explore the topic of bond valuation. The mini project requires you to work in Excel with the provided spreadsheet. Be sure to fill in the yellow boxes in the Excel file for full credit. In addition, type up a report in Word with an introduction (description of the mini project), findings (answer assignment questions, plots, etc.), and conclusion (summary). Your grade will depend on both quantity and quality. Upon completion, please submit both your Word report and Excel file to blackboard. Each question (A, B, C, D, E, F, and G) is worth 6 points (total of 42 points), the report 9 points, and the Excel file 9 points.
Bond Valuation
Assume that a 20-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 5 years at a call price of $1,040. The bond sells for $1,100 (Assume that the bond has just been issued). Employ the excel file to answer the following questions:
Part 1: Bond Yield
A) Calculate the Periods to Maturity, Periodic Payment, and Periods until Callable.
B) Calculate the periodic Yield to Maturity using the Excel function and the Annualized Yield to Maturity. The Annualized Yield is equal to the periodic YTM times the number of periods per year.
C) Calculate the Annual Coupon Payment, Current Price, and the Current Yield. The current yield is defined as Annual Coupon payment/Current Price.
D) Calculate the Capital Gain or Loss Yield. Capital Gain or Loss Yield = Annualized YTM - Current Yield.
E) Calculate the Periodic Yield to Call using the Excel function and the Annualized Yield to Call.
Part 2: Relation between Bond Value and Market Interest Rate
F) Calculate the Bond Value using the Excel function and create a bond value table (be sure to fill in the table) for different interest rates using the Excel function.
G) Graph the actual bond value considering call likelihood (y-axis) against the annual market interest rate (x-axis). Label the y-axis, x-axis, and chart title.
Excel Note: If you want to lock in a cell reference, use the $ symbol. For example, if you would like to keep the value of cell A5 constant for use in a formula, reference it as $A$5.
Show all work, calculations and formulas that you used in excel.