High School

Ruiz Company issued bonds on January 1 and has provided the relevant information. The Controller has asked you to calculate the bond selling price given two different market interest rates using Excel’s Present Value functions. Use the information included in the Excel Simulation and the Excel functions described below to complete the task.

1. **Cell Reference**:
- Allows you to refer to data from another cell in the worksheet.
- Example: Entering `=B2` in a blank cell would output the result from cell B2, e.g., $500,000.

2. **Basic Math Functions**:
- Use the basic math symbols to perform mathematical operations:
- `+` (add), `-` (subtract), `*` (multiply), `/` (divide).
- Example: Entering `=B3+B5` would add the values from those cells, e.g., 31.

3. **PV Function**:
- Allows you to calculate the present value of a series of future payments.
- Syntax: `=PV(rate, nper, pmt, [fv], [type])`
- Note: Include the `[pmt]` and `[fv]` arguments as negative values, but omit the `[type]` argument.

4. **IF Function**:
- Tests a condition and returns a specific value if the result is true, and a different value if false.
- Syntax: `=IF(test_condition, value_if_true, value_if_false)`
- Note: Text in the arguments should be in quotations to be recognized as strings.

Instructions for the Excel Simulation:
- Include the `[pmt]` and `[fv]` arguments as negative values for the PV function.
- Omit the `[type]` argument from the PV function.
- Ensure that text in IF function conditions and results is enclosed in quotations.

Example of IF Function Usage:
- `=IF(B2>250000, "Cash is great", "Cash is bad")` will return "Cash is great" if the condition is true.

Complete the task using these guidelines to calculate the bond selling price at two different market interest rates.

Answer :

Final answer:

In Excel, you can calculate the bond's selling price using the PV function with the rate, nper, pmt, and fv inputs. Then, to adjust the selling price based on different conditions, use the IF function. However, remember to input pmt and fv as negative values.

Explanation:

To calculate the bond selling price using different market interest rates in Excel, first, you need to determine the present value of the bond's cash flows. Use the PV function with the relevant information provided. Given the instructions, your PV function would look something like this: =PV(rate, nper, pmt, fv). Remember to enter the 'rate' as the market interest rate, 'nper' as the number of payment periods, 'pmt' as the payment made each period (entered as a negative value), and 'fv' as the future value or the cash basis to attain after the last payment is made (again entered as a negative value). In the case of Ruiz Company, you will need to use the details from the Excel Simulation such as the bond value, interest rates, and payment periods. Suppose the bond value (the face value) is in cell B2 and the annual coupon payment is in cell B3. If the market interest rate is 5%, you can calculate the selling price of the bond using the formula =PV(5%, B2, -B3, -B5). If you're asked to adjust the selling price based on different conditions (i.e., interest rate changes), you would utilize the IF function. For example, if the selling price needs to display a specific message when the interest rate exceeds a particular threshold, you could use the IF function like this: =IF(rate>5%, “High Interest Rate”, “Low Interest Rate”).

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