flows are less valuable than earlier cash flows, duration indicates a weighted-average maturity. When new bonds are issued with higher interest rates, they are automatically more valuable to investors because they pay more interest per year compared to pre-existing bonds. As an investor, you need to be aware of the risks involved with different bond choices. In this example, we are valuing a bond with 15 years to maturity, entered.5 in cell C5;.0 coupon rate in cell C7 (enter the rate as a decimal and use your spreadsheets formatting capabilities to display the results as a percentage. To compute the remaining price changes, we want to keep the original bond value (from cell B21 in Table 2 ) constant, so we make it an absolute address, using the dollar sign in front of the column and row references.
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In this example, we created Table 2 in a separate worksheet. The only other element necessary to complete the valuation is the appropriate market interest rate (also called the required feedyourpets com coupon rate of return for the bond). Bonds with higher coupon rates pay higher coupon payments, allowing investors to be paid back their initial investment costs sooner in terms of time value of money, and thus subjecting bond prices to interest rate change to a lesser degree. Table 2 shows the impact that different market interest rates and years to maturity have on the price of a bond with a 4 coupon rate. The data in, table 1 was used to create the graph shown.