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  • LIVE PROJECT TO CALCULATE THE PRESENT VALUE AND YTM OF THE BOND Submitted by:- Mayuri Gariba Mudit Agrawal Nikhil Bakre Nikita Agrawal Pooja Zaveri   Submitted to:- MRS. Prashant Jain Faculty(F.M) 21/10/2008 PRESENT VALUE AND YTM
  •   Objective   Introduction   Formula   Data Calculation   21/10/2008 PRESENT VALUE AND YTM
    • To calculate Present Value(P O ) and Yield to Maturity(YTM) of a Bond
    21/10/2008 PRESENT VALUE AND YTM
    • BONDS:-
    • In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date.
    • Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company whereas bond-holders are lenders to the issuing company.
    21/10/2008 PRESENT VALUE AND YTM
  • 21/10/2008 PRESENT VALUE AND YTM
    • Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.
    • An exception is a consol bond, which is a perpetuity
    • (i.e., bond with no maturity).
  • 21/10/2008 PRESENT VALUE AND YTM
    • FACE VALUE:-
    • The face value of bonds usually represents the principal or redemption value .
    •  
    • Interest payments are expressed as a percentage of face value.
    • Before maturity, the actual value of a bond may be greater or less than face value, depending on the interest rate payable and the perceived risk of default.
    21/10/2008 PRESENT VALUE AND YTM
    •  
    • As bonds approach maturity, actual value approaches face value.
    •  
    • Its also called as Par value .
    • A BOND is generally issued at the par value of Rs 100 and sometimes Rs 1000.
    21/10/2008 PRESENT VALUE AND YTM
    • Coupon rate or Interest :-
      • The coupon or coupon rate of a bond is the amount of interest paid per year expressed as a percentage of the face value of the bond.
    • Maturity:-  
    • The bond's maturity date refers to a future date on which the issuer pays the principal to the investor.
    • Bond maturities usually range from one day up to 30 years or even more.
    •  
    21/10/2008 PRESENT VALUE AND YTM
    • Redemption value:-
    •  
        • The value which the bond holder gets on maturity is called Redemption value.
        • A bond may be redeemed at par, at premium (more than par) or at discount (less than par).
    •  
    21/10/2008 PRESENT VALUE AND YTM
    • When a bond sells at a discount, YTM > current yield > coupon yield.
    • When a bond sells at a premium, coupon yield > current yield > YTM.
    • When a bond sells at par, YTM = current yield = coupon yield amt
    21/10/2008 PRESENT VALUE AND YTM
    • Present Value:-
    • P O = I (PVIFA kd,n ) + F (PVIF kd,n )
    • = I {(1+k) n – 1/k(1+k) n } + F {1/(1+k) n }
    21/10/2008 PRESENT VALUE AND YTM
    •   Yield to Maturity:-
    •  
    • YTM = {I+ (F-P)/n} / (F+P)/2
    • Where:-
    • I = Annual Interest
    • kd = k = Required rate of return
    • n = Maturity period of bond
    • P o = Present Value of bond
    • F = Par value repayable at the maturity
    • P = Current market price of the bond
    21/10/2008 PRESENT VALUE AND YTM
  • 21/10/2008 PRESENT VALUE AND YTM Bond Holder Company name Mkt price (P) Annual Interest (I) ROR(kd = k ) Maturity period(n) Face value or Par value (F) Navin Shah Bank of Baroda 101.00 8.95% 10% 10yrs 1000 Hariom Gupta BSES Ltd. 96.00 5.95% 7% 15yrs 1000 Ankit Agrawal Canara bank 126.00 9.00% 11% 15yrs 1000 Narendra Jain CITICORP FINANCE LIMITED 195.00 10.25% 8% 3yrs 1000 Sumeet Natwani EXIM BANK 86.00 9.04% 10% 5yrs 1000
    • Present Value:-
    • P O = I (PVIFA kd,n ) + F (PVIF kd,n )
    • = I {(1+k) n – 1/k(1+k) n } + F {1/(1+k) n }
    • = 89.5{(1+0.10) 10 - 1/0.10(1+0.10) 10 }
    • +1000{(1/(1+0.10) 10 }
    • = 3737. 50
    21/10/2008 PRESENT VALUE AND YTM
    •   Yield to Maturity:-
    •  
    • YTM = {I+ (F-P)/n} / (F+P)/2
    • = {89.5 + (1000-101)/10} /
    • (1000+101)/2
    • = 179.4/550.5
    • = 0.32
    21/10/2008 PRESENT VALUE AND YTM
  • 21/10/2008 PRESENT VALUE AND YTM