Worksheet for calculating bond prices and yields

Trading at Trading at Trading at Interest rate Effect of current yield on long-

Bond prices
discount premium par risk term price. Notice that the discount
Par $100.00 $100.00 $100.00 $100.00 for a bond (which occurs when the
Coupon rate 5.75% 8.25% 9.00% 5.75% coupon rate is below current yield) is
Time to maturity (yrs) 3 6.5 11 29 much greater for a long-term bond
Current yield 8.75% 7.80% 9.00% 8.75% than for a bond close to maturity.
Price $92.23 $102.26 $100.00 $68.58

Calculate price Your bond

How price is computed. Price is computed by
Par $1,000.00 calculating the PV of the annuity of interest
Coupon rate 8.60% payments + the PV of the final principal payment:
Time to maturity (yrs) 10
Current yield 8.00% PV(interest pymts) = Pymt*[(1 + i)n - 1] / (1 + i)n *i
Price $1,040.77 PV(principal pymt) = P / (1 + i)n

where Pymt = semi-annual interest pymt

Calculate yield Your bond P = principal (par value)
Par $1,000.00 i = semi-annual interest (coupon rate / 2)
Coupon rate 8.60% n = semi-annnual periods (time to maturity *
2)
Time to maturity (yrs) 10
Current yield 9.46%
Price $945.00
How yield is computed. If you know a bond's price, you can figure out
its yield.

This requires a process of trial-and-error. You can enter estimates of yield

in the spreadsheet and adjust them so that the formula produces the
current price.

Or you can let the spreadsheet undertake the trial-and-error process using
"goal seek" (under Tools). For example, if the price is $945:
(1) in "Set cell" enter the cell that shows price (here C22).
(2) in "To value" enter the price ($945)
(3) in "By changing cell" enter the cell that will show yield (here C21)

The spreadsheet does the rest. Notice the result -- 9.46267215511011%

Or you can let the spreadsheet undertake the trial-and-error process using
"goal seek" (under Tools). For example, if the price is $945:
(1) in "Set cell" enter the cell that shows price (here C22).
(2) in "To value" enter the price ($945)
(3) in "By changing cell" enter the cell that will show yield (here C21)

The spreadsheet does the rest. Notice the result -- 9.46267215511011%

C8: How price is computed. Price is computed by calculating the PV of the annuity of interest payments + the PV of the final
principal payment:

PV(interest pymts) = Pymt*[(1 + i)n - 1] / (1 + i)n *i

PV(principal pymt) = P / (1 + i)n

where Pymt = semi-annual interest pymt

P = principal (par value)
i = semi-annual interest (coupon rate / 2)
n = semi-annnual periods (time to maturity * 2)

F8: Effect of current yield on long-term price. Notice that the discount for a bond (which occurs when the coupon rate is
below current yield) is much greater for a long-term bond than for a bond close to maturity.

C22: How yield is computed. If you know a bond's price, you can figure out its yield.

This requires a process of trial-and-error. You can enter estimates of yield in the spreadsheet and adjust them so that the
formula produces the current price.

Or you can let the spreadsheet undertake the trial-and-error process using "goal seek" (under Tools). For example, if the
price is $945:
(1) in "Set cell" enter the cell that shows price (here C22).
(2) in "To value" enter the price ($945)
(3) in "By changing cell" enter the cell that will show yield (here C21)

The spreadsheet does the rest. Notice the result -- 9.46267215511011%