Bond

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.