1. Find a Walmart bondWatch the FINRA search walkthrough ↗
Chapter 7 — Bond Pricing (MBA Foundations)
Learning Goals
- Understand what a bond is: coupon, maturity, price, yield
- Explore the relationship between bond prices and interest rates
- Practice computing bond prices, current yield, yield to maturity (YTM)
- Use Excel and online calculators for real examples
📽️ Chapter 7 Slides (PPT)
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Bond Basics
A bond is a loan you make to a company or government. You receive periodic interest payments (“coupons”) and the face value (par, usually $1,000) at maturity.
| Term | Meaning |
|---|---|
| Coupon | Annual interest payment, e.g., 5% of $1,000 = $50 |
| Price | What you pay for the bond today (may be below or above $1,000) |
| Yield to Maturity | The annualized return if you hold the bond until maturity |
Start Here — What Is a Bond? | An AI Company Story
A beginner-friendly introduction to borrowing, coupon payments, bondholders, and repayment at maturity. This FIN301 video is also helpful for FIN509 students before starting Chapter 7.
What is a Bond? (quick intro)
Adjustable Bond Cash-Flow Timeline
Change the bond inputs and redraw the timeline. The tool computes price directly from the YTM you enter.
Purchase price (outflow)
Coupons and final par (inflows)
Cash-Flow Breakdown
4) Price–Yield Curve (hold everything else constant)
Tip: This keeps par, coupon, maturity, and frequency fixed while sweeping the YTM. Expect a downward-sloping curve.
Excel (How-to + Recipes)
Quick how-to
- Price (present value of coupons + par):
=ABS(PV(rate, nper, pmt, fv))Userate = YTM/frequency,nper = years*frequency,pmt = coupon*par/frequency,fv = par.Bond Calculators
Use these tools to compute bond price, YTM, and current yield. Each one also shows the Excel formula and the math setup.
Calculator A: Price from YTM
Price Result
Bond price—Annual coupon ($)—Current yield—Price is the present value of all future cash flows discounted at the YTM.
Excel Formula
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Math Setup
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Calculator B: YTM from Price
YTM Result
YTM (annual %)—Current yield—Excel Formula
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Math Setup
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Calculator C: Current Yield
Current Yield Result
Annual coupon ($)—Current yield—Excel Formula
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Math Setup
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- Yield to Maturity (solve for rate):
=RATE(nper, pmt, -Price, fv)*frequencyReturn is annualized by multiplying the per-period rate byfrequency. - Current Yield (quick ratio):
=(coupon*par)/Price - Duration (Excel built-in):
=DURATION(Settle, Maturity, coupon, ytm, frequency, 1)and=MDURATION(...)
Copy/paste recipes
- Price (semi-annual):
=ABS(PV( y/2 , n*2 , coupon*par/2 , par )) - YTM (semi-annual):
=RATE( n*2 , coupon*par/2 , -Price , par )*2 - Current Yield:
=(coupon*par)/Price - Duration (semi-annual):
=DURATION(Settle, Maturity, coupon, ytm, 2, 1)/=MDURATION(...) - Zero price from YTM (semi-annual):
=ABS(PV( y/2 , n*2 , 0 , par ))
Examples
- Price a 5-yr, 4% annual coupon at 5% yield:
=ABS(PV(5%, 5, 40, 1000))→ $956.71 - YTM for 10-yr, 5% semi-annual coupon, price $950:
=RATE(10*2, 0.05*1000/2, -950, 1000)*2→ ≈ 5.66%
Worked Examples (sanity checks) — with math + Excel
- YTM from price (semi-annual): 10-year, 5% coupon, par $1,000, price $950.
🔍 Show solution (math + Excel)
Given: N = 10 years, frequency = 2 ⇒ periods Np = 20; coupon/period = 0.05×1000/2 = $25.
Math setup: Let i be the per-period yield. Solve
950 = Σ_{t=1}^{20} 25/(1+i)^t + 1000/(1+i)^{20}. Numerical root gives i ≈ 0.02815 ⇒ YTM = 2×i ≈ 5.63%.Excel:
=RATE(10*2, 0.05*1000/2, -950, 1000)*2→ 5.63% - Zero-coupon yield (semi-annual): 10-year zero priced $456.39.
🔍 Show solution (math + Excel)
Math: Price = PV of par only:
456.39 = 1000/(1 + r/2)^{20}⇒1 + r/2 = (1000/456.39)^{1/20}⇒r = 2*((1000/456.39)^{1/20} − 1) ≈ 8.00%.Excel:
=RATE(10*2, 0, -456.39, 1000)*2→ 8.00% - Current Yield vs YTM: 5% coupon priced at $850.
🔍 Show solution (math + Excel)
Current yield (approx):
CY = annual coupon / price = 0.05×1000 / 850 = 5.88%.Why YTM > CY here? Discount price < par implies a capital gain component at maturity, so YTM exceeds current yield.
Illustrative YTM (assume 10y, semi-annual):
=RATE(10*2, 0.05*1000/2, -850, 1000)*2→ ≈ 7.12% (changes with maturity).
Tip: sanity-check sensitivity with Excel =DURATION()/=MDURATION() for the same inputs.
Yield Curve Shapes — Normal vs Inverted vs Humped
Watch: Yield Curve Video
These are illustrative (not live market data). Toggle the shapes to show students how the term structure can look.
Maturities: 3M · 6M · 1Y · 2Y · 3Y · 5Y · 7Y · 10Y · 20Y · 30Y | Y-axis: yield (%). Data below are fixed examples for demonstration.
Normal (upward-sloping)
- Longer maturities yield more (term premium).
- Typical in expansions; policy not overly tight.
Inverted
- Short rates > long rates (policy tight, markets expect cuts).
- Often associated with slowdown/recession risk.
Humped (bell-shaped)
- Middle maturities highest; long end lower than the “belly”.
- Suggests transition/uncertainty about inflation and policy path.
Where to Find Bond Data
Real-World Yield Curve (live link + quick Q&A)
Visit: U.S. Treasury Yield Curve or the interactive UST Yield Curve explorer.
⚠️ Note (updated Jul. 9, 2026): The Treasury yield curve is currently not inverted.
Based on the latest Federal Reserve H.15 / Treasury constant-maturity data, the 2-year Treasury yield is
4.16% and the 10-year Treasury yield is
4.54%
(2s/10s spread = +0.38%).
Because the 10-year yield is higher than the 2-year yield, the yield curve is
upward sloping (normal).
Quick read: A positive 2s/10s spread means the 10-year Treasury yield is higher than the 2-year Treasury yield, indicating a normal (upward-sloping) yield curve rather than an inverted one.
What does a normal (upward-sloping) curve usually mean? (click to reveal)
- Story: Investors demand higher yields to lock money up longer → inflation/term risk priced into long bonds.
- Economy signal: Expansion baseline; policy not tight.
- Student takeaway: Long-term rates > short-term. If you need cash soon, avoid long duration (bigger price swings). If your horizon is long, you can earn more but accept interest-rate risk.
What does an inverted curve mean? (click to reveal)
- Story: Short rates (anchored by Fed policy) are high; markets expect future cuts → long yields below short yields.
- Economy signal: Often a slowdown/recession risk signal; credit conditions tight.
- Student takeaway: T-bills/CDs can yield more than 10-year Treasuries. Defensive posture and shorter duration make sense for near-term goals.
What does a humped curve mean? (click to reveal)
- Story: Mixed signals—front end tight, mid maturities softer, long end higher (inflation/term premium).
- Economy signal: Transition/uncertainty (policy shifts, inflation doubts).
- Student takeaway: Consider a barbell (some short, some long) instead of concentrating in the middle.
Practice
- Compute price of a 3-year zero-coupon bond at 5% yield.
- Find current yield for a 10-year 6% coupon bond selling at $950.
- Use Excel to solve YTM for IBM 5-year 4% coupon bond priced at $920.
- Graph price vs yield for a 10-year bond (Excel data table).
FIN509 · Chapter 7 · OPTIONAL ICE · EXTRA CREDIT
OPTIONAL ICE — Walmart Bond Lab (Extra Credit)
Choose one real Walmart bond. Use the three videos below to explain its cash flows, calculate its price and yield in Excel, and investigate what could happen if interest rates rise tomorrow.
Optional extra-credit opportunity — double your Chapter 7 homework points. Complete the regular Q1–Q14 homework first. Students who also successfully complete this separate Walmart bond ICE may earn extra credit equal to their Chapter 7 homework points, for up to twice the regular homework points in total. This ICE is not required. Watch the three videos below, follow the ICE instructions, and submit a separate Excel workbook through the course-approved submission method.
2. Understand the bond dataWatch the data and cash-flow lesson ↗
3. Calculate in ExcelWatch the PV and RATE demonstration ↗
Open ICE Homework instructions & Excel formulas ▾
1 · Find and document one bond
Open FINRA Fixed Income Data, search for Walmart, and choose one outstanding, fixed-rate coupon bond with a future maturity date. Analyze that same bond throughout the exercise.
Save a screenshot and record the issuer, CUSIP or bond symbol, annual coupon rate, maturity date, payment frequency, latest available trade price, trade date, and displayed yield. Record the exact yield label (for example, YTM or yield to worst), and note whether the bond is callable. If a field is unavailable, say so rather than guessing.
Price check: If the quote is a percentage of par, a quote of 95.00 means $950 per $1,000 face value. An older trade is not necessarily today's executable market price.
2 · Explain the cash flows
Use $1,000 face value. Calculate the annual coupon and coupon per payment. Draw a timeline showing the purchase price as an outflow at time 0, each coupon as an inflow, and the last coupon plus $1,000 principal at maturity. Label both periods and years.
In two or three sentences, explain what the investor pays today, what the investor receives later, and whether the quoted bond sells at a discount, at par, or at a premium.
3 · Build your Excel model
Create clearly labeled input cells. Let m be payments per year (1 for annual; 2 for semiannual), N the remaining coupon periods, C the coupon per period, and P0 the quoted dollar price per $1,000 face value.
Classroom assumption: Treat today as immediately after a coupon payment. Use a whole number of remaining coupon periods, state your chosen N, and ignore accrued interest, fees, and early redemption. This simplified model may differ from an actual settlement calculation.
| Find | Excel formula using named inputs |
|---|---|
| Coupon per period | =1000*CouponRate/m |
| Classroom implied annual YTM | =RATE(N,C,-P0,1000)*m |
| Price check using that YTM | =ABS(PV(YTM/m,N,C,1000)) |
| Current yield | =(C*m)/P0 |
Use actual cell references or define the names above. Enter rates as percentages in Excel. RATE returns a rate per payment period; multiplying by m gives a nominal annual YTM. Your implied YTM is a classroom result and may differ from FINRA's displayed yield.
Annual versus semiannual: what changes?
For annual payments, use the annual yield, years remaining, and full annual coupon. For semiannual payments, divide the annual yield and annual coupon by 2 and multiply years by 2. In both cases, the rate, number of periods, and coupon must use the same payment interval.
Zero-coupon check: In a copy of your model, set C to zero and keep the same maturity and YTM. Use PV to find the new price. Explain why there are no interim cash inflows and why current yield is zero even though YTM can be positive.
4 · Tomorrow's surprise: the Fed raises rates by 1 percentage point
Predict before calculating: What would you expect to happen to the price of your existing fixed-rate Walmart bond tomorrow? Explain your reasoning using the bond's fixed cash flows and the returns available on competing bonds.
A Fed policy-rate increase does not automatically raise this bond's YTM by the same amount. Expectations, maturity, and credit spreads also matter. For the calculation below, assume your bond's own annual YTM rises by exactly 1 percentage point and everything else stays constant. For example, 5% becomes 6%.
| Scenario output | Excel formula |
|---|---|
| New annual YTM | =YTM+1% |
| New modeled price, P1 | =ABS(PV((YTM+1%)/m,N,C,1000)) |
| Dollar change | =P1-P0 |
| Percentage change | =P1/P0-1 |
Keep the same coupon, principal, and N for this one-day comparison. Report the original and new prices side by side. Does the result match your prediction? Explain why the coupon payment stays the same while the market price changes.
5 · Make your conclusion clear
Write a short conclusion addressing: How does current yield differ from YTM? Why does a higher required yield reduce the present value of the bond's cash flows? What assumptions prevent your scenario from being a precise forecast of tomorrow's trade price?
What to turn in
Submit one Excel workbook with your FINRA screenshot and source date, bond inputs, labeled cash-flow timeline, visible PV and RATE formulas, current yield, the before-and-after price comparison, and your written explanations. Use all three videos to work through the exercise. The ICE is optional extra credit; submit it separately from Q1–Q14 through the course-approved submission method. Eligible completed ICE work can earn additional points equal to the regular Chapter 7 homework points (up to double the points).
Homework — Chapter 7 (Excel-standardized, Chapter 6 style)
Required homework: Q1–Q14. Watch the video below for the question-by-question Excel walkthrough. Optional extra credit: complete the separate Walmart bond ICE above for the opportunity to double your Chapter 7 homework points.
▶ Chapter 7 Homework Video — Q1–Q14 Explained in Excel
Watch on YouTube ↗ — Each question appears first, followed by the Excel function and solution.
Chapter 6 layout with the fixed row: Function, rate, nper, pmt, pv, fv, type. Works with semi-annual convention.
Excel Input Key (standardized)
par= 1000frequency f= payments/year (1=annual, 2=semi-annual, 4=quarterly, 12=monthly)rate(per period) =YTM / fnper=years × fpmt(per period) =coupon% × par / ffv=par(=1000)
Signs: When solving
RATE(), price goes in as a negative PV (e.g., -950). For prices, PV() returns negative by convention — use ABS() to display as positive.Videos — homework help (Chapter 7)
Quiz 2
FYI ONLY · OPTIONAL VIEWING · ABOUT 12 MINUTES
Treasury Yields: Why the 10-Year Matters for Business & Stocks
What is in this video? Treasury bills, notes and bonds; their maturities; 30 years of yield history; the 2-year versus the 10-year Treasury; and the effects of higher rates on bond prices, corporate debt, private credit, private equity and stocks.
Why is this covered in Chapter 7? It connects bond pricing and present value to the real decisions MBA students face: borrowing money, refinancing debt, evaluating a business and understanding financial-market news.
Questions this video helps you answer
- Is the 10-year yield “too high”? A yield near 5% is not automatically a crisis. Compare it with inflation, growth expectations, historical yields and the cash flows of the borrower or investment.
- Is inflation the only reason yields rise? No. Expected future Fed policy, inflation compensation and the premium investors require for holding longer-term debt all matter. Treasury supply and investor demand can also affect yields.
- Do higher yields have no effect on stocks? They can have a substantial effect: higher borrowing costs can reduce profits, and higher discount rates reduce the present value of future cash flows. Stronger earnings can offset those pressures, so stocks do not always fall when yields rise.
- Why can bonds sell below par? When the required market yield rises above a fixed coupon rate, the bond’s price falls below face value. A below-par price alone does not prove that the issuer will default.
- Why watch private credit and private equity? High leverage, floating-rate interest and upcoming refinancing can create strain. Many private-credit loans reset with short-term benchmarks such as SOFR, rather than directly with the 10-year yield. Exposure differs across borrowers and funds.
Data dates: The video was prepared October 20, 2026. Its daily snapshot is October 16, 2026 (2-year: 4.74%; 10-year: 5.09%); historical charts use monthly data through September 2026. These are dated observations, not live quotes. “Yield” here refers to market yield, not the fixed coupon rate.