Chapter 11 Excel Application: Immunization
1. When rates increase by 100 bp, what is the change in the future sales price of the bond?
[Cell F12 = $B$3 + .01]
Cell F14 automatically calculates the sales price after the rate increase. The sales price drops
from $1,000 to $990.83 (a $9.17 decrease)
The value of reinvested coupons?
2. What if rates increase by 200 bp? What is the change in the future sales price of the bond?
The value of reinvested coupons?
[Cell B12 = $B$3 + .02]
3. What is the relation between price risk and reinvestment rate risk as we consider larger
changes in bond yields?
The relationship between price risk and reinvestment rate risk is inverse. With larger increases in
yields, the increase in the value of reinvested coupons begins to dominate the drop in sales price
(price risk).
Step 2: Recognize that a 200 bp change in rates implies a difference in magnitude between future