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Sensitivity Analysis Bonds

1. If the market yield is 5%, the bond price is $1,000 (par value). If the yield falls to 4.5% or rises to 5.5%, the price is $1,040 or $962 respectively. 2. A sensitivity analysis shows the bond price for yields from 0-20% and maturities from 1-20 years. 3. If the bond price falls to $950, its yield to maturity is 5.67%, as calculated using the Rate or IRR functions in Excel by setting the NPV equal to the current price.

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Zhenyi Zhu
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82 views

Sensitivity Analysis Bonds

1. If the market yield is 5%, the bond price is $1,000 (par value). If the yield falls to 4.5% or rises to 5.5%, the price is $1,040 or $962 respectively. 2. A sensitivity analysis shows the bond price for yields from 0-20% and maturities from 1-20 years. 3. If the bond price falls to $950, its yield to maturity is 5.67%, as calculated using the Rate or IRR functions in Excel by setting the NPV equal to the current price.

Uploaded by

Zhenyi Zhu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Bond (coupon paid once a year) Questions:

Par value $1,000 1 What is the bond price if the market yield is 5%? What if the
Coupon interest rate 5% 2 Perform a sensitivity analysis with respect to market yield (fro
Maturity (years) 10 using Excel: Data, What-If, Data Table
Discount rate 5% 3 Suppose the bond's price has fallen below par, to $950. Wha
Bond price P

Term to Maturity
Sensitivity Analysis 1 3 5 7 10 15 20
0%
1%
Market Yield 2%
3%
4%
5%
6%
7%
8%
9%
10%
market yield is 5%? What if the market yield falls or rises by 50 basis points?
with respect to market yield (from 0% to 10%) and the maturity of the bond (1 to 20 years)

fallen below par, to $950. What is its yield to maturity?

Step 1 Design your data table as in the blue area


Step 2 In the top left-hand cell, refer to the formula whose value you're interested in (the bond price)
Step 3 Highlight the blue area and click on Data, What-If Analysis, Data Table
Step 4 Fill in the prompts: horizontally, you are varying the maturity, vertically the discount rate
Bond (coupon paid once a year) Questions:
Par value $1,000 1 What is the bond price if the market yield is 5%? What if the
Coupon interest rate 5% Coupon $50 2 Perform a sensitivity analysis with respect to market yield (fro
Maturity (years) 10 using Excel: Data, What-If, Data Table
Discount rate 5% 3 Suppose the bond's price has fallen below par, to $950. Wha
Bond price P $1,000

Answers
1 If the market yield is the same as the coupon, the bond trades at par, $1,000.
If the market price falls to: 4.50% $1,040 using Excel's PV function.
If the market price rises to: 5.50% $962 using Excel's PV function.

2 Sensitivity Analysis
Term to Maturity
$1,000 1 3 5 7 10 15 20
0%
1%
Yield 2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%

3 Find YTM if price falls to: $950


Using RATE function: nper 10 5.67% Using IRR function, lay out the cash
pmt $50
pv -$950
fv $1,000
market yield is 5%? What if the market yield falls or rises by 50 basis points?
with respect to market yield (from 0% to 10%) and the maturity of the bond (1 to 20 years)

fallen below par, to $950. What is its yield to maturity?

Year 1 2 3
Alternatively, lay out the cash flows and use the NPV function: $1,040 CF 50 50 50
Alternatively, lay out the cash flows and use the NPV function: $962

Bond Price as a Function of Market Yield


(5% coupon, 10 year maturity)
$12

$10

$8

$6
Price

$4

$2

$0
-5% 0% 5% 10% 15% 20%
Market Yield

g IRR function, lay out the cash flows: 5.67% Year 0 1 2 3 4 5 6


CF -$950 50 50 50 50 50 50
4 5 6 7 8 9 10
50 50 50 50 50 50 1050

% 20%

7 8 9 10
50 50 50 $1,050

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