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A B C D E F G H I J
BOND PRICING
Annual Payments
Inputs
Number of Periods to Maturity (T) 8 8
Face Value (PAR) $1,000 20
Discount Rate / Period (r) 3.25% 6
Coupon Payment (PMT) $35.00 7
Bond Price using a Timeline
Period 0 1 2 3 4 5 6 7 8
Cash Flows
Present Value of Cash Flows
Bond Price
Bond Price using the Formula
Bond Price (P)
Bond Price using the PV Function
Bond Price
( )
( ) ( )
( )
1 1
1
T
T
PMT r
PAR
P
r
r

+
= +
+
1
2
3
4
5
6
7
8
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A B C D E F G H I J K L M N O P Q R S T U V
BOND PRICING EAR, APR, & Foreign Currencies Currency: US Dollar
Exch Rate
$1.00 =
$1.00
Currency Number 4
Inputs (Select from below)
Rate Convention 2 Annual Percentage Rate 1 = Chinese Yuan 7.3790
Annual Coupon Rate 4.00% 8 2 = European Euro 0.6805
Yield to Maturity (Annualized) 1.74% 3 3 = Indian Rupee IDR 39.30
Number of Payments / Year 2 2 4 = US Dollar $1.00
Number of Periods to Maturity (T) 8 8
Face Value (PAR) $1,000 20
Outputs
Discount Rate / Period (r)
Coupon Payment (PMT)
Bond Price using a Timeline
Period 0 1 2 3 4 5 6 7 8
Time (Years)
Cash Flows
Present Value of Cash Flows
Bond Price
Bond Price using a Formula
Bond Price
Bond Price using a Function
Bond Price
Bond Price using the PRICE Function (under APR)
Bond Price
Yield to Maturity (Annualized) 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%
Data Table: Sensitivity of Bond Price to Discount Rate / Period
Output Formula:
Bond Price
Bond Pricing By Calendar Time
Calendar Time (Years) 0 0.5 1 1.5 2 2.5 3 3.5 4
Time to Maturity (Years) 4 3.5 3 2.5 2 1.5 1 0.5 0
Number of Periods to Maturity (T)
Bond Price of Coupon Bond
Bond Price of Par Bond
Input Values for Discount Rate / Period
(8) Create the bond price Data Table.
Select the range B64:V65, click on
Data | Data Tools | What-If Analysis | Data Table,
enter B12 in the Row Input Cell,
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0.0% 5.0% 10.0% 15.0% 20.0%
B
o
n
d
P
r
i c
e

Yield To Maturity
Bond Price By Yield To Maturity
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0 1 2 3 4
B
o
n
d

P
r
i c
e

Calendar Time (Years)
Bond Pricing by Calendar Time
EAR APR
BOND PRICING
Duration and Convexity
Currency:
Inputs
Rate Convention 2
Annual Percentage Rate
Annual Coupon Rate 4.00% 8
Yield to Maturity (Annualized) 1.74% 3
Number of Payments / Year 2 2
Number of Periods to Maturity (T) 8 8
Face Value (PAR) $1,000 20
Outputs
Discount Rate / Period (r)
Coupon Payment (PMT)
Bond Duration using a Timeline
Period
Time (Years)
Cash Flows
Present Value of Cash Flows
Bond Price using a Timeline
Weight
Weight * Time
Duration using a Timeline
Modified Duration using a Timeline
Bond Duration using a Formula
Duration (D) using a Formula
Modified Duration using a Formula
Bond Duration using a Function (under APR)
Duration using a Function
Modified Duration using a Function
Bond Convexity
Weight * (Time^2+Time)
Convexity using a Timeline
Convexity using a Formula
EAR APR
( )
( )
( )
1 /
1
1 1
T
r T CR NOP r
r
D
r NOP
CR r r NOP
+ +
+
=

+ +
( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
( )
( )
( )
( )
1
2 3
2
2 2
1 1 2
1 1 2 3 2
1
1
T
T
CR r r NOP
CR r NOP T T r NOP T r NOP T NOP T
r
r NOP CR r CR r NOP
+
| |
+ + +
|
|
+ + + + + + + + +
\ .
+
+ +
US Dollar
Exch Rate
$1.00 =
$1.00
Currency Number 4
(Select from below)
1 = Chinese Yuan 7.3790
2 = European Euro 0.6805
3 = Indian Rupee IDR 39.30
4 = US Dollar $1.00
( )
( )
( )
1 /
1
1 1
T
r T CR NOP r
r
D
r NOP
CR r r NOP
+ +
+
=

+ +
( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
( )
( )
( )
( )
1
2 3
2
2 2
1 1 2
1 1 2 3 2
1
1
T
T
CR r r NOP
CR r NOP T T r NOP T r NOP T NOP T
r
r NOP CR r CR r NOP
+
| |
+ + +
|
|
+ + + + + + + + +
\ .
+
+ +
BOND PRICING
Price Sensitivity
Inputs Annual Percentage Rate
Rate Convention 2
Annual Coupon Rate (CR) 4.00% 8
Yield to Maturity (Annualized) 1.74% 3
Number of Payments / Year (NOP) 2 2
Number of Periods to Maturity (T) 8 8
Face Value $1,000 20
Outputs
Discount Rate / Period (r) 0.9%
Coupon Payment $20
Chart Outputs
Yield to Maturity (Annualized) 0.50% 1.00% 1.50% 2.00% 2.50%
Discount Rate / Period
Change in Yield to Maturity
Actual Bond Price
Current Bond Price
Actual Percent Change in Price
Modified Duration
Duration Approximation
Convexity
Duration and Convexity Approx.
0%
20%
40%
60%
80%
100%
120%
0.0% 20.0% 40.0%
P
e
r
c
e
n
t

C
h
a
n
g
e

i
n

P
r
i
c
e

Change in Yield To Maturity
Price Sensitivity
( )
( )
( )
( )
1 /
1
* 1
1 1
T
r T CR NOP r
r
D r
r NOP
CR r r NOP
| |
+ +
+
|
= +
|

+ + |
\ .
EAR APR
( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
( )
( )
( )
( )
1
2 3
2
2 2
1 1 2
1 1 2 3 2
1
1
T
T
CR r r NOP
CR r NOP T T r NOP T r NOP T NOP T
r
r NOP CR r CR r NOP
+
| |
+ + +
|
|
+ + + + + + + + +
\ .
+
+ +
Currency: US Dollar
Exch Rate
$1.00 =
$1.00
Currency Number 4
(Select from below)
1 = Chinese Yuan 7.3790
2 = European Euro 0.6805
3 = Indian Rupee IDR 39.30
4 = US Dollar $1.00
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
40.0% 60.0% 80.0% 100.0% 120.0%
Change in Yield To Maturity
Price Sensitivity
Actual Percent Change in Price
Duration Approximation
Duration and Convexity Approx.
( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
( )
( )
( )
( )
1
2 3
2
2 2
1 1 2
1 1 2 3 2
1
1
T
T
CR r r NOP
CR r NOP T T r NOP T r NOP T NOP T
r
r NOP CR r CR r NOP
+
| |
+ + +
|
|
+ + + + + + + + +
\ .
+
+ +
7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 10.00%
BOND PRICING
Immunization
Inputs
Rate Convention 2
Annual Percentage Rate
Yield to Maturity (Annualized) 1.74%
Number of Payments / Year 2
Annual Coupon
Rate
Number of
Periods to
Maturity (T)
Face Value
(PAR)
Number of
Bonds
Bond 1 1.50% 4 $1,000 1,783
Bond 2 2.00% 8 $1,000 2,042
Bond 3 0.90% 2 $1,000 0
Bond 4 1.50% 4 $1,000 0
Bond 5 1.90% 6 $1,000 0
Bond 6 2.30% 8 $1,000 0
Bond 7 1.90% 6 $1,000 0
Bond 8 2.30% 8 $1,000 0
Outputs
Discount Rate / Period (r)
Bond Present Value, Duration, and Convexity using a Timeline
Period 0 1 2 3
Time (Years) 0.0 0.5 1.0 1.5
Liabilities $0 $0 $0
Present Value of Liabilities
Total Present Value of Liabilities
Weight
Weight * Time
Duration of Liabilities
Modified Duration of Liabilities
Weight * (Time^2+Time)
Convexity of Liabilities
Assets
Bond 1 $0 $0 $0
Bond 2 $0 $0 $0
Bond 3 $0 $0 $0
Bond 4 $0 $0 $0
Bond 5 $0 $0 $0
Bond 6 $0 $0 $0
Bond 7 $0 $0 $0
Bond 8 $0 $0 $0
Total Assets $0 $0 $0
Present Value of Assets
Total Present Value of Assets
Weight
Weight * Time
Duration of Assets
Modified Duration of Assets
Weight * (Time^2+Time)
EAR APR
Convexity of Assets
Differences
Total Assets - Liabilities
PV of Assets - PV of Liabilities
Duration of Assets - Duration of Liab
Convexity of Assets - Convexity of Liab
To solve the first problem
when there is a single liability to immunize
To solve the second problem
when there is a series of liabilities to immunize
To solve the third problem
when there is a series of liabilities to immunize
with cash flow matching
Currency: US Dollar
Exch Rate
$1.00 =
$1.00
Coupon
Payment (PMT)
4 5 6 7 8
2.0 2.5 3.0 3.5 4.0
$0 $0 $4,000,000 $0 $0
$1,782,856 $0 $0 $0 $0
$0 $0 $0 $0 $2,041,788
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$1,782,856 $0 $0 $0 $2,041,788
Currency Number 4
(Select from below)
1 = Chinese Yuan 7.3790
2 = European Euro 0.6805
3 = Indian Rupee IDR 39.30
4 = US Dollar $1.00
1
2
3
4
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32
33
34
35
36
37
38
39
40
41
42
A B C D E F G H I J
BOND PRICING
Currency: US Dollar
Exch Rate
$1.00 =
$1.00
Inputs Annual Percentage Rate
Rate Convention 2
Annual Coupon Rate 4.00%
Yield to Maturity (Annualized) 1.74%
Number of Payments / Year 2
(1) Number of Periods to Maturity (T) 8
(2) Face Value (PAR) $1,000
(3) Discount Rate / Period (r) 0.87%
(4) Coupon Payment (PMT) $20.00
(5) Bond Price (P) $1,086.96
(1) Number of Periods to Maturity (T) from the other four variables
Number of Periods to Maturity using NPER Function
(2) Face Value (PAR) from the other four variables
Face Value using the FV Function
Face Value using the Formula
(3) Discount Rate / Period (r) from the other four variables
Discount Rate / Period using the RATE Function
(4) Coupon Payment (PMT) from the other four variables
Coupon Payment using the PMT Function
Coupon Payment using the Formula
(5) Bond Price (P) from the other four variables
Bond Price using the PV Function
Bond Price using the Formula
System of Five Bond
Variables
EAR APR
( )
( )
( ) ( )
1 1
1
T
T
PMT r
PAR P r
r
+
= +
( )
( )
( ) ( )
1
1 1
T
T
P PAR r
PMT
r r

+
=
+
( )
( ) ( )
( )
1 1
1
T
T
PMT r
PAR
P
r
r

+
= +
+