This document discusses bond valuation and provides examples of calculating bond prices. It explains that a bond will trade at par value if the coupon rate is equal to the market rate, at a discount if the coupon rate is less than the market rate, and at a premium if the coupon rate is greater than the market rate. The market rate and price are inversely related, so as the market rate increases the price decreases and vice versa. Several examples are given of calculating bond prices for different coupon rates and required market rates over a 5 year term with annual and semi-annual interest payments. Assignment questions at the end ask to calculate bond prices for Rs 1,000 face value bonds maturing in 20 years with various coupon and market rates and

1. Valuation of Fixed
Income Securities
(Bond)

2. • Coupon rate (i)
• Market Rate (Required Rate) (rd)
• i =rd, Bond sells for PAR
• i < rd, Bond sells for a discount
• i> rd, Bond sells for a premium
• rd increases, Value decreases
• rd decreases, Value increases

3. Interest is paid annually
C = coupon payment
n = number of payments
i = interest rate, or required yield
M = value at maturity, or par value

4. Interest is paid semi annually

5. • A Govt. of India Saving, 10 percent bonds matures in 5
years. Assume that the interest on these bonds is paid
annually. Determine the value of a Rs.1,000 denomination
Govt. of India Savings bonds as of today if the required
rate of return is 7 percent.

6. • NHAI Capital Gain,10 percent bonds matures in 5
years. Assume that the interest on these bonds is
paid semi annually. Determine the value of a
Rs1,000 denomination NHAI Capital Gain Bonds
as of today if the required rate of return is 7
percent.

7. • PFC Capital Gain,7 percent bond matures in 5
years. Assume that the interest on these bonds is
paid annually. Determine the value of a Rs1,000
denomination PFC Capital Gains Bonds as of
today if the required rate of return is 10 percent.

8. • NHAI Capital Gain,7 percent bond matures in 5 years. Assume
that the interest on these bonds is paid semi annually. Determine
the value of a Rs1,000 denomination NHAI Capital Gains
Bonds as of today if the required rate of return is 10 percent.

9. • REC Capital Gain,10 percent bond matures in 5 years.
Assume that the interest on these bonds is paid semi
annually. Determine the value of a Rs1,000 denomination
REC Capital Gains Bonds as of today if the required rate
of return is 10 percent.

10. • REC Capital Gain,10 percent bond matures in 5
years. Assume that the interest on these bonds is
paid annually. Determine the value of a Rs1,000
denomination REC Capital Gains Bonds as of
today if the required rate of return is 10 percent.

11. Assignment:
• Calculate the price of a bond with a par value of Rs 1,000 to be paid in
twenty years, a coupon rate of 10%, and a required yield of 12%.
Assume that coupon payments are made semi-annually to bond.
• Calculate the price of a bond with a par value of Rs 1,000 to be paid in
twenty years, a coupon rate of 12%, and a required yield of 10%.
Assume that coupon payments are made semi-annually to bond.
• Calculate the price of a bond with a par value of Rs 1,000 to be paid in
twenty years, a coupon rate of 10%, and a required yield of 10%.
Assume that coupon payments are made semi-annually to bond.