Education Technology

Bonds and Bond Yield to Maturity

Published on 06/09/2008

Activity Overview

In this activity, students will deal with Bonds, that are long-term promissory notes, specifying that the creditor will receive regular interest payments for the term of the agreement and then receive the face amount of the bond. Students will have to estimate the market value of bonds and explore bond values versus current market interest rates.

Before the Activity

  • Select TVM Solver from the calculator menu
  • See the attached PDF file for detailed instructions for this activity
  • Print pages 42 - 45 from the attached PDF file for your class
  • During the Activity

    Distribute the pages to the class.

    Follow the Activity procedures:

  • Calculate the market value of a bond, which is the present value (PV), using the number of periods, interest rate, monthly payments, and future value
  • If the current market interest rate is equal to coupon rate, then the market value of the bond equals its face amount
  • If the current market interest rates are higher, the bond's market value is lower and it is selling at a discount
  • If the current market interest rates are lower, the bond's market value is higher and it is selling at a premium
  • Calculate the present value of bonds at a given interest rate
  • Plot a graph of interest rate versus the present value of the bond
  • Prepare a table displaying the present value of the bond at various interest rates
  • After the Activity

    Review student results:

  • As a class, discuss questions that appeared to be more challenging
  • Re-teach concepts as necessary