YTM Practice
3
Year Payments Interest 0 10000 0.1 1 0.1 2 0.1 3 0.1 4 3000 2049.04 0.1 5 3000 1862.764 0.1 6 3000 1693.422 0.1 7 3000 1539.474 0.1 8 0.1 9 0.1 10 0.1 Total 10000 12000 7144.7 Bond Price PV of payments Wh $1 in Fi se No ch ce Se ch fo Th re an 10
description
Yield Curve Practice
Transcript of YTM Practice
Year Bond Price Payments Interest0 10000 0.11 0.12 0.13 0.14 3000 2049.0404 0.15 3000 1862.764 0.16 3000 1693.4218 0.17 3000 1539.4744 0.18 0.19 0.1
10 0.1Total 10000 12000 7144.7005
PV of payments
What is the yield to maturity of a bond that sells for $10,000 now with four equal payments of $3,000 starting in year 4?
First, spend some time probing how the spreadsheet is set up. Notice that when you change cell E2, the interest rate changes and present values change. Also make sure that cell D6 actually returns the value of $3000/(1+i)^4.
Second, think about solving the YTM equation by changing cell E2. What interest rate are we looking for?
Third, invoke "Goal Seek" to solve the equation with respect to i. Go to Data tab, What-if Analysis button, and select "Goal Seek." You want to set D13 equal to 10000 by changing E2. Got it?
What is the yield to maturity of a bond that sells for $10,000 now with four equal payments of $3,000 starting in year 4?
First, spend some time probing how the spreadsheet is set up. Notice that when you change cell E2, the interest rate changes and present values change. Also make sure that cell D6 actually returns the value of $3000/(1+i)^4.
Second, think about solving the YTM equation by changing cell E2. What interest rate are we looking for?
Third, invoke "Goal Seek" to solve the equation with respect to i. Go to Data tab, What-if Analysis button, and select "Goal Seek." You want to set D13 equal to 10000 by changing E2. Got it?
Payoff 30 year 10 year 1 year 30 year 10 year 1 year0 50.21064 58.07528 91.66667 YTM 0.21 10 10 110 8.333333 8.333333 91.666672 10 10 6.944444 6.944444 03 10 10 5.787037 5.787037 04 10 10 4.822531 4.822531 05 10 10 4.018776 4.018776 06 10 10 3.34898 3.34898 07 10 10 2.790816 2.790816 08 10 10 2.32568 2.32568 09 10 10 1.938067 1.938067 0
10 10 110 1.615056 17.76561 011 10 1.34588 0 012 10 1.121567 0 013 10 0.934639 0 014 10 0.778866 0 015 10 0.649055 0 016 10 0.540879 0 017 10 0.450732 0 018 10 0.37561 0 019 10 0.313009 0 020 10 0.260841 0 021 10 0.217367 0 022 10 0.181139 0 023 10 0.150949 0 024 10 0.125791 0 025 10 0.104826 0 026 10 0.087355 0 027 10 0.072796 0 028 10 0.060663 0 029 10 0.050553 0 030 110 0.463399 0 0
