Your company has two bond issues outstanding. They both have an 8% coupon rate and a $1,000

Question:

Your company has two bond issues outstanding. They both have an 8% coupon rate and a $1,000 par value. One bond matures in two years while the other bond matures in 20 years.

1. Using an Excel spread sheet, calculate the value of each of these bonds if:

Current market rates are 5%.

Current market rates are 8%.

Current market rates are 13%.

2. Why does the longer-term bond fluctuate more in value than the shorter-term bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...