Present value of 5% bond

davep3000

New Member
Joined
Mar 12, 2021
Messages
3
Office Version
  1. 365
Platform
  1. Windows
Hey, I was wondering if you guys could explain this to me.



On the 1st tab I have a situation where a $100 bond pays coupon payments of $5 (5% bond). I have 3 examples... a 1 year bond, a 2 year bond and a 3 year bond.



On that tab, I discount the cash flows at 5% and so I expect the NPV formula to give me $0 (and it does). I expect the sum of the discounted cash flows to give me $100 and they do



But on the 2nd tab I change the discount rate to 3%. As expected, the $5 coupon bond trades at a premium. But what I don't understand is the NPV formula gives a slightly different result to the manual discounting columns (and the PV formula columns). That is indicated by the "Variance" on row 23.



The 3 year bond has a bigger variance than the 2 year which has a bigger variance than the 1 year.



Same thing when I use a 7% discount rate (3rd tab)



I'm wondering what I'm doing wrong / which is right - the NPV formula or the manual calc.

Can't download the mini-sheet software unfortunately but I can email you the file. Pretty easy to reconstruct...
 

Attachments

  • bond variance.PNG
    bond variance.PNG
    51.8 KB · Views: 1

Excel Facts

How to fill five years of quarters?
Type 1Q-2023 in a cell. Grab the fill handle and drag down or right. After 4Q-2023, Excel will jump to 1Q-2024. Dash can be any character.

davep3000

New Member
Joined
Mar 12, 2021
Messages
3
Office Version
  1. 365
Platform
  1. Windows
so, I just had the idea of adding some dates and using the XNPV formula and I see that agrees with my manual recalc. So I guess there is something about the NPV formula that I don't understand
 

Attachments

  • bond variance XNPV.PNG
    bond variance XNPV.PNG
    54 KB · Views: 0

davep3000

New Member
Joined
Mar 12, 2021
Messages
3
Office Version
  1. 365
Platform
  1. Windows
I figured this out, I shouldn't have included the initial $ - 100 CF in the NPV formula because Excel thinks that happens at the end of year 1 instead of at period zero.
 

Watch MrExcel Video

Forum statistics

Threads
1,129,880
Messages
5,638,810
Members
417,054
Latest member
elimiro

We've detected that you are using an adblocker.

We have a great community of people providing Excel help here, but the hosting costs are enormous. You can help keep this site running by allowing ads on MrExcel.com.
Allow Ads at MrExcel

Which adblocker are you using?

Disable AdBlock

Follow these easy steps to disable AdBlock

1)Click on the icon in the browser’s toolbar.
2)Click on the icon in the browser’s toolbar.
2)Click on the "Pause on this site" option.
Go back

Disable AdBlock Plus

Follow these easy steps to disable AdBlock Plus

1)Click on the icon in the browser’s toolbar.
2)Click on the toggle to disable it for "mrexcel.com".
Go back

Disable uBlock Origin

Follow these easy steps to disable uBlock Origin

1)Click on the icon in the browser’s toolbar.
2)Click on the "Power" button.
3)Click on the "Refresh" button.
Go back

Disable uBlock

Follow these easy steps to disable uBlock

1)Click on the icon in the browser’s toolbar.
2)Click on the "Power" button.
3)Click on the "Refresh" button.
Go back
Top