Valuation of Bonds and Shares

Problem 1
(1) 1-year government bond maturity value (Rs)
Market rate of interest
PV of the bond: 1,000/1.08 (Rs)
(2) Purchase price of bond (Rs)
Implied return: (1,000 904.98)/904.98

1,000
8%
925.93
904.98
10.50%

Problem 2
Perpetual interest (Rs)
Current yield
Price of bond (B) (Rs): 140/0.13
Required rate
New price of bond (B) (Rs) : 140/0.15
B

1
4
0
0
.
1
3

1
4
0
0
.
1
3

1
0
7
6

140
0.13
1076.92
0.15
933.33

9
2

Problem 3
Face value (Rs)
Annual interest (Rs)
Maturity (years)
Maturity value (Rs)
Required rate
PVAF, 10 year
PVF, 10 year
PV of interest (Rs)
PV of maturity value (Rs): (d x g)
PV of 10-year debenture (Rs)

1000
140
10
1000
0.12
5.6502
0.3220
791.03
321.97
1113.00
n 10

PV of 10 - year bond =

140
(1.12
)
t

t 1

0.14
5.2161
0.2697
730.26
269.74
1000.00

0.16
4.8332
0.2267
676.65
226.68
903.34

1,000
(1 .12 )10

140 PVAF .12,10 1,000 PVF.12,10

140 5 .6502 1,000 0 .3220 Rs 1,113.00
Similar calculations can be made if the required rate is 14% or 16%.
What would happen to the present value of bond if it had a maturity of 5 years? A similar procedure can be
followed. PV of a 5-year bond at 12%, 14% and 16% respectively will be as shown below:
Required rate
PVAF, 5 year
PVF, 5 year
PV of interest (Rs)
PV of maturity value (Rs)
PV of 5-year debenture (Rs)

0.12
3.6048
0.5674
504.67
567.43
1072.10

0.14
3.4331
0.5194
480.63
519.37
1000.00

0.16
3.2743
0.4761
458.40
476.11
934.51

1000
0.16
160
800

1300

1000

0.20

0.123

0.16

Problem 4
Face value (Rs)
Interest rate
Interest (Rs): (1,000 x 0.16)
Price of bond, B0 (Rs)
Yield

INT
B 0

Problem 5
Taxco (three-year maturity):

PVF

PVF

Year Cash flow

1
120
2
120
3
1120

9% PV (Rs)
0.917
110.09
0.842
101.00
0.772
864.85
1075.94

12%
0.893
0.797
0.712

Year Cash flow

1
60
2
60
3
1060

PVF 9% PV (Rs)
0.917
55.05
0.842
50.50
0.772
818.51
924.06

PVF 12%
0.893
0.797
0.712

Year Cash flow

1
120
2
120
3
120
4
120
5
120
6
120
7
120
8
1120

9% PV (Rs)
0.917
110.09
0.842
101.00
0.772
92.66
0.708
85.01
0.650
77.99
0.596
71.55
0.547
65.64
0.502
562.09
1166.04

12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404

Year Cash flow

1
60
2
60
3
60
4
60
5
60
6
60
7
60
8
1060

PVF 9% PV (Rs)
0.917
55.05
0.842
50.50
0.772
46.33
0.708
42.51
0.650
39.00
0.596
35.78
0.547
32.82
0.502
531.98
833.96

PVF 12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404

Maxco (three-year maturity):

Taxco (eight-year maturity):

Maxco (eight-year maturity):

Problem 6
(1) Annual compounding: Annual interest rate 12%
Discount rate - annual

10%
Period Cash flow
PVF
1 to 5*
120
5
1,000

* Annuity factor
(2) Half-yearly compounding: Half-yearly interest rate 6%
Discount rate -half-yearly
Period
Cash flow
PVF
1 to 10*
60
10
1,000

12%
PV

3.791
0.621

PVF
454.89
620.92
620.92

3.605
0.567

5%

6%
PV

7.722
0.614

PVF
463.30
613.91
1,077.22

7.360
0.558

* Annuity factor
(3) Quarterly compounding: Quarterly interest rate 3%
Discount rate -half-yearly
Period
Cash flow
1 to 20

2.50%
PVF
60

3%
PV

15.589

PVF
935.35

14.877

20

1,000

0.610

610.27
1,545.62

0.554

Bond 2
14%
13%
15
100
7.00%
6.50%
30
13.0587
7
91.41
0.1512
15.12
106.53
100
14.00%
7.00%

Bond 3
12%
8%
20
100
6.00%
4.00%
40
19.7928
6
118.76
0.2083
20.83
139.59
110
10.76%
5.39%

Bond 4
12%
8%
10
100
6.00%
4.00%
20
13.5903
6
81.54
0.4564
45.64
127.18
115
9.60%
4.82%

* Annuity factor
Problem 7
Face value (Rs)
Maturity periods (half-yearly)
Half-yearly interest rate
Interest payment period
Maturity value (Rs)
Required rate (half-yearly)
Interest payment, 11 to 20 years (Rs)
Value of interest (Rs)
Value of maturity value (Rs)
Value of bond (Rs)
20

Valueof bond

(1.07)
60t

t 11

1,000
20
6%
10
1,050
7%
60.00
214.23
271.34
485.57

1,050
(1.07)n

60 PVAF
20,7% PVAF
10,7% 1,050 PVF
20,7%

60 10.5940 7.0236 1,050 0.2584 Rs 485.57

Problem 8
Bond 1
16%
15%
25
100
8.00%
7.50%
50
12.9748
8
103.80
0.0269
2.69
106.49
95
16.86%
8.43%

Interest rate
Required rate of return
Maturity period (years)
Par/maturity value (Rs)
Semi-annual interest rate
Required rate of return (half-yearly)
Compounding periods
PVAF (annuity)
Half-yearly interest (Rs)
PV of interest (Rs)
PVF (lump sum)
PV of maturity value (Rs)
Bond value (Rs)
Current market price of bonds (Rs)
Annual yields (by trial & error)
Semi-annual yield (by trial & error)

Value of a bond that pays interest half-yearly can be calculated by the following equation:

2n

B0

t 1

Problem 9

1
2

( INT t )

(1

kd t
)
2

Bn
(1

k d 2n
)
2

20 year bond redeemable in 12 years : Half - yearly interest 5%; periods 24

24

1, 000

(1 YTC )
50 t

t 1

1,150
(1 YTC ) n

YTC 5 .32 %
24

1, 000

(1 YTC )
50 t

t 1

1,100
(1 YTC ) n

YTC 5 .22 %
20 year bond redeemable in 8 years : Half - yearly interest 5%; periods 16
16

1, 000

(1 YTC )
50 t

t 1

1,150
(1 YTC ) n

YTC 5 .60 %
Problem 10
20 year bond redeemable in 12 years : Half - yearly interest 5%; periods 24
24

1,000

(1 YTC)
50 t

t 1

1,150
(1 YTC) n

YTC 5.32%
24

1,000

(1 YTC)
50 t

t 1

1,100
(1 YTC) n

YTC 5.22%
20 year bond redeemable in 8 years : Half - yearly interest 5%; periods 16
16

1,000

(1 YTC)
t 1

50 t

1,150
(1 YTC) n

YTC 5.60%

Problem 11
Annual interest rate
15%
Quarterly interest rate
3.75%
Market price (Rs)
875
Maturity value (Rs)
1000
Quarterly periods
60
New interest rate
12.00%
New quarterly interest rate
3.00%
Stated yield
Quarterly interest (Rs)
37.5
Market price (Rs)
875
Quarterly yield
4.34%
Expected yield
Quarterly interest (Rs)
30
Market price (Rs)
875
Quarterly yield
3.50%
Quarterly yields can be found by trial and error. You can also use the Excel formula for rate to calculate yield:
= RATE(nper,pmt,pv,[fv],[type],guess)
Problem 12
Value of perpetual preference share =12/0.10 = Rs 120

120

Value

of redeemable

preference

share

12

t 1

(1 . 10 )

12 PVAF

110
(1 . 10 ) 7

7 ,10 %

110 PVF

7 ,10 %

12 4 . 868 110 0 . 513 Rs 114 . 87

You can use the Excel formula to calculate value of redeemable preference share: =PV(rate,nper,pmt,[fv],[type])
Problem 13
Expected DPS (Rs)
Current share price (Rs)
Share price after 1 year (Rs)
Required rate
PV of share (Rs):

P =

3.00
50.00
53.00
0.10

DIV 1 P1
(1 k e )

3 53
1 .1

50.91

Return on share:

re

DIV1 P1 P0 3 53 50

P0
50

12%

Problem 14
Share price (Rs)
Capitalisation rate

75.00
0.12
Year

DPS
(Rs)

0
1
2
3
4
4

Share price (Rs)

7.50
7.50
9.00
15.00
70.00

Value of the share

It is a desirable investment since the present value of the share is more than its current price.

Problem 15
Current share price
DPS
Growth rate
Required rate
Value of the share:
DIV 1
P0
k e g

1 . 5 (1 . 1 )
0 . 12 0 . 10

Share should be bought

60.00
1.50
0.10
0.12

1 . 65
0 . 02

82.5

82 . 50

PVF
at 12%
0.8929
0.7972
0.7118
0.6355
0.6355

PV
(Rs)
6.70
5.98
6.41
9.53
44.49
73.10

Problem 16
Earnings growth up to 7 years
Perpetual growth after 7 years
Required rate for 7 years
Required rate after 7 years
EPS
DPS

0.15
0.09
0.12
0.10
4.00
2.00
DPS
(Rs)

Year
0
1
2
3
4
5
6
7

PVF
@ 12%
2.00
2.30
2.65
3.04
3.50
4.02
4.63
5.32

0.8929
0.7972
0.7118
0.6355
0.5674
0.5066
0.4523

PV
(Rs)
2.05
2.11
2.17
2.22
2.28
2.34
2.41
15.58

Present value of dividend growing perpetually after 7 years

P7

DIV7 (1 g n )
5.32(1.09)

Rs 579.88
k e gn
0.10 0.09

PV of Rs 579.88

579.88

579 . 88 1 . 10 7 579.88 0.5132 Rs 297.57

Value of share: 15.58 + 297.57

Problem 17
(Rs)
Current EPS
Retention ratio, b
Current DPS, DIV0 = EPS0(1 - b)
Rate of return, r
Required rate, ke
Current share price (Rs)
Growth, g = b x r
Expected EPS (Rs): EPS1 = EPS0(1+g) = 5 x 1.09
Expected DPS (Rs): DIV1 = DIV0(1+g) = 2 x 1.09
Expected retained earnings, RE1 = EPS1 - DIV1
Value of share if g = 0

P0

EPS 1
k e g

5 . 45
0 . 13 0

5
0.6
2
0.15
0.13
60
0.09
5.45
2.18
3.27

41.92

Value of share if g = 9%

P0

DIV1
2 (1.09)
2.18

ke g
0.13.09
0.04

Value of growth opportunities, Vg (Rs): 54.50 - 41.92

The following formula can be used to find Vg:

Vg

RE 1 r k e
k e k e g

Problem 18

3.27.15.13 .0654

.13.13.09
.0052

54.50
12.58

12.58

297.57
313.16

Total assets (Rs)

Equity (Rs)
Number of shares
Equity per share: 80,000/10,000
Internal rate of return, r
Earnings: 10% 80,000
EPS
Capitalisation rate, k
Retention ratio, b
Dividend per share, DIV: 30% 8
Growth rate, g: b r
Expected DIV: 0.240 1.07
PV of share: 0.2568/(0.12 0.07)

80,000
80,000
10,000
8
10%
8000
0.8
12%
70%
0.24
7%
0.2568
5.14

Problem 19
Last year's DPS (Rs)
Current market price (Rs)
Required rate

Growth rate
Value of share (Rs)

3
80
0.1
Scenario 1:
Scenario 2:
Perpetual growth
No growth

Scenario 3:
Different
growth rates

0
0.06
3/.10= Rs 30 3(1.06)/.1 - .06 =Rs Rs 68.84
79.5
(see below)

Scenario 3: Different growth rates

Growth rate
1-3 years
4-6 years
7 year and onwards

0.12
0.07
0.04

PV of DPS at 10% from year 1 to 6

PV of DPS growing perpetually at the end of 6 years:
5.16(1.04)/(.1 - .04)

Year
0
1
2
3
4
5
6

DPS (Rs)
3.00
3.36
3.76
4.21
4.51
4.83
5.16

0.9091
0.8264
0.7513
0.6830
0.6209
0.5645

5.37

16.6667

PV of value of Rs 89.50 received at the end of 6th year:

89.5 x 0.5645
Value of share (Rs): 18.32 + 50.42

0.5645

Problem 20
Current DPS (Rs)
Current growth rate
New growth
Capitalisation rate
Share price (Rs) if g = 5%, [5(1.05)/(0.15-.05)]
Share price (Rs) if g = 10%, [5(1.1)/(0.15-0.1)]

5
0.05
0.1
0.15
52.5
110

When the firms growth increases from 5% to 10%, the share prices rises from Rs 52.50 to Rs 110. It is quite
logical since price depends on expected dividend and future growth opportunities.
Problem 21
Face value (Rs)

PVF

10

EPS (Rs)
11.9
10.2
12.0
20.1

Bajaj
Hero Honda
Kinetic
Maharashtra. Scooters

Dividend rate
0.50
0.22
0.25
0.25

Market price
(Rs)
275.0
135.0
177.5
205.0

DPS (Rs)
5.0
2.2
2.5
2.5

Bajaj has the highest current share price but it also pays maximum dividend (as a percentage of its earnings). On the other hand, Maharashtra Scooters has maximu
EPS, lowest payout, lowest dividend yield and it is ranked third in terms of share price. Hero Honda has lowest EPS and lowest share price. Kinetic ranks at third p
in terms of EPS, DPS and share price. It appears that the market is giving consideration to the companies current performance as well as future growth prospects.
Problem 22
DPS in year 0 (Rs)
DPS in year 10, (Rs)
Period (years)
Dividend growth rate: [(10.5/3.5)1/10 -1]
Share price (Rs)
Expected dividend yield [3.5(1.1161)/75]
Capitalisation rate: 0.1161 + 0.0521

3.5
10.5
10
0.1161
75
0.0521
0.1682

Problem 23
Current EPS (Rs)
Growth
Payout
Retention ratio: 1 - .4
Capitalisation rate
DPS (Rs)
Expected EPS: 8.6 1.12
Expected dividend: 3.44 1.12
Expected retained earnings: 9.63 x 0.60
Share value (12% growth) (Rs)
Share value (no growth) (Rs)
Value of growth opportunities:
Firm's rate of return:

g r b
r g / b . 12

0.20

/ .6

Value of growth opportunities:

Vg

8.6
0.12
0.4
0.6
0.18
3.44
9.63
3.85
5.78
64.21
53.51
10.70

10.70

RE1r ke 5.78.20 .18 .1156

ke ke g
.18.18 .12 .0108

Problem 24

Face value (Rs)

Interest or dividend rate
Payment frequency
Maturity (years)
Compounding periods
Maturity value (Rs)
Principal amount (Rs crore)
Required rate of return
PVAF (annuity)
PVF (lump sum)
Interest/dividend amount (Rs)

12%
debenture
1000
12%
annual
12
12
1000
50
0.100
6.8137
0.3186
120

14%
debenture
1000
14%
half-yearly
10
20
1000
30
0.060
11.4699
0.3118
70

Pref.
share

Equity
share
100

100
15%
annual annual

100
0.135

200
0.150

15

12

Perpetual growth rate

Market value of each debenture or share (Rs)

Total market value (Rs crore)

0.08
120 x 6.8137
70 x 11.4699
+ 1000 x .3186
+ 1000 x .3118 15/.135
12/(.15 - .08)
1136.27
1114.70
111.11
171.43
56.81
33.44
111.11
342.86

Problem 25
Net profit (Rs crore)
Number of shares (crore)
EPS: 50/2
ROE
Capitalisation rate, k
Payout
Retention ratio, b
Dividend per share, DIV: 60% 25
Growth rate, g: b r: 40% 25%
Expected DIV: 25 1.10
Current share price (Rs), P0
Expected dividend yield: DIV1/ P0
Capitalisation rate, k = (DIV1/ P0) + g

50
2
25
25%
12%
60%
40%
15
10%
16.5
240
6.88%
16.88%

Problem 26
Net earnings (Rs million)
Paid-up capital (Rs million)
Par value of share (Rs)
Number of shares: paid-up capital/par value of share
(mn.)
EPS = dividend per share, DIV (assumed): 25/20
Growth (without investment)
Opportunity cost of capital
Share price: P0 = (1.25 1.02)/ (0.10 0.02)
Investment (Rs million)
Earnings from investment (Rs million)
Life of investment, years
Investments NPV: PV of Rs 2 million for 15 years at
10%: 2*7.6061-10
Share price (with investment): 15.94 + 5.21 (million)

25
200
10
20
1.25
2%
10%
15.94
10
2
15
5.21
21.15

Problem 27
Earnings (without project) (Rs crore)
Number of shares (crore)
EPS: 80/5
Required rate of return
Share price (without project): 16/0.125
Earnings from project after one year (Rs crore)
EPS from project: 20/5
Growth in earnings from project after one year
Required rate of return
Value of growth opportunities: 4/(0.125 0.08)
Share value with project: 128 + 88.89
EPS after project
P/E ratio: 216.89/20

80
5
16
12.50%
128
20
4
8%
12.50%
88.89
216.89
20
10.84

Problem 28
Number of shares (million)

10

Net cash profits (Rs million)

Cash EPS: 80/10
Opportunity cost of capital
(a) (i) Retention ratio
Return on retained earnings
Growth: 40% 20%
Expected Dividend per share, DIV1: 8 (1 0.40) 1.08

80
8
20%
40%
20%
8%
5.18

Share price: 5.18/(0.20 0.08)

(a) (ii) Retention ratio
Return on retained earnings
Growth: 60% 20%
Expected Dividend per share, DIV1: 8 (1 0.60) 1.12
Share price: 3.58/(0.20 0.12)
(b) (i) Retention ratio
Return on retained earnings
Growth: 40% 24%
Expected Dividend per share, DIV1: 8 (1 0.40) 1.096
Share price: 5.26/(0.20 0.096)
(b) (ii) Retention ratio
Return on retained earnings
Growth: 60% 24%
Expected Dividend per share, DIV1: 8 (1 0.60) 1.144
Share price: 3.66/(0.20 0.144)

43.20
60%
20%
12%
3.58
44.80
40%
24%
9.60%
5.26
50.58
60%
24%
14.40%
3.66
65.37

Problem 29
Year
Cash EPS (perpetuity)
Payout
DIV
Opportunity cost of capital
(a) Share price: 10/0.15
(b) Expansion opportunity
Earnings retention
Rate of return
Growth: 50% 18%
DIV1: 5 1.09
Period of growth, years
Value of growth opportunity:
n
1

1 g

V DIV 1
1

k g
1 k

10

1
1 . 09

5 . 45
1

0 . 15 0 . 09
1 . 15

5 . 45 16 . 67 0 . 4148 Rs 37.68

Value after growth opportunity: (101.0910/0.15)

PV after growth opportunity: 157.80 1/1.1510
Total share price with growth opportunity: 37.68 + 39.01

10
100%
10
15%
66.67
50%
18%
9%
5.45
10

0
1
2
3
4
5
6
7
8
9
10

37.68

157.80
39.01
76.69

EPS
10.00
10.90
11.88
12.95
14.12
15.39
16.77
18.28
19.93
21.72
23.67

DPS
5.00
5.45
5.94
6.48
7.06
7.69
8.39
9.14
9.96
10.86
11.84

PVF

PV (Rs)
107.14
95.66
797.19
1000.00

6% PV (Rs)
0.943
113.21
0.890
106.80
0.840
940.37
1160.38

PV (Rs)
53.57
47.83
754.49
855.89

PVF 6% PV (Rs)
0.943
56.60
0.890
53.40
0.840
890.00
1000.00

PV (Rs)
107.14
95.66
85.41
76.26
68.09
60.80
54.28
452.35
1000.00

6% PV (Rs)
0.943
113.21
0.890
106.80
0.840
100.75
0.792
95.05
0.747
89.67
0.705
84.60
0.665
79.81
0.627
702.70
1372.59

PV (Rs)
53.57
47.83
42.71
38.13
34.05
30.40
27.14
428.12
701.94

PVF 6% PV (Rs)
0.943
56.60
0.890
53.40
0.840
50.38
0.792
47.53
0.747
44.84
0.705
42.30
0.665
39.90
0.627
665.06
1000.00

16%
PV

PVF
432.57
567.43
1000.00

PV
3.274
0.476

392.92
476.11
869.03

8%
PV

PVF
441.61
558.39
1,000.00

PV

PV
6.710
0.463

402.60
463.19
865.80

4%
PVF
PV
892.65
13.590
815.42

553.68
1,446.32

0.456

456.39
1,271.81

1- yearbond
(i) Annualyield
10100
95
15%
1 y
(ii) Half- yearlyyield
5
5 100
95

7.8%
1 y (1 y)2
2 yearbond
(i) Annualyield
10 10100
100

10%
1 y (1 y)2

(ii) Half- yearlyyield

5
5
5
5
100

1 y (1 y)2 (1 y)3 (1
3 yearbond
(i) Annualyield
10
10
10100
110

6.2
1 y (1 y)2 (1 y)3

(ii) Half- yearlyyield

5
5
5
5
110

1 y (1 y)2 (1 y)3 (1
4 yearbond
(i) Annualyield
10
10
10
10
115

1 y (1 y)2 (1 y)3 (1
(ii) Half- yearlyyield
5
5
115

5
3

,[fv],[type])

(ii) Half- yearlyyield

5
5
5
5
100

1 y (1 y)2 (1 y)3 (1
3 yearbond
(i) Annualyield
10
10
10100
110

6.2
1 y (1 y)2 (1 y)3

114.87

(ii) Half- yearlyyield

5
5
5
5
110

1 y (1 y)2 (1 y)3 (1
4 yearbond
(i) Annualyield
10
10
10
10
115

1 y (1 y)2 (1 y)3 (1

(ii) Half- yearlyyield

5
5
5
5
115

1 y (1 y)2 (1 y)3 (1

PV (Rs)
3.05
3.11
3.17
3.08
3.00
2.91
18.32
89.50
50.52
68.84

Payout
0.420
0.216
0.208
0.124

Earnings
yield
0.0433
0.0756
0.0676
0.0980

Dividend
yield
0.0182
0.0163
0.0141
0.0122

rnings). On the other hand, Maharashtra Scooters has maximum

has lowest EPS and lowest share price. Kinetic ranks at third place
anies current performance as well as future growth prospects.

1- yearbond
(i) Annualyield
10100
95
15%
1 y
(ii) Half- yearlyyield
5
5 100
95

7.8%
1 y (1 y)2
2 yearbond
(i) Annualyield
10 10100
100

10%
1 y (1 y)2
(ii) Half- yearlyyield
5
5
5
5 100
100

5%
1 y (1 y)2 (1 y)3 (1 y)4
3 yearbond
(i) Annualyield
10
10
10100
110

6.24%
1 y (1 y)2 (1 y)3
(ii) Half- yearlyyield
5
5
5
5
5
5 100
110

3.15%
1 y (1 y)2 (1 y)3 (1 y)4 (1 y)5 (1 y)6
4 yearbond
(i) Annualyield
10
10
10
10100
115

5.70%
1 y (1 y)2 (1 y)3 (1 y)4
(ii) Half- yearlyyield
5
5
115

5
3

5
4

5
5

5
6

5
7

5 100
8

2.87%

(ii) Half- yearlyyield

5
5
5
5 100
100

5%
1 y (1 y)2 (1 y)3 (1 y)4
3 yearbond
(i) Annualyield
10
10
10100
110

6.24%
1 y (1 y)2 (1 y)3
(ii) Half- yearlyyield
5
5
5
5
5
5 100
110

3.15%
1 y (1 y)2 (1 y)3 (1 y)4 (1 y)5 (1 y)6
4 yearbond
(i) Annualyield
10
10
10
10100
115

5.70%
1 y (1 y)2 (1 y)3 (1 y)4
(ii) Half- yearlyyield
5
5
5
5
5
5
5
5 100
115

2.87%
1 y (1 y)2 (1 y)3 (1 y)4 (1 y)5 (1 y)6 (1 y)7 (1 y)8

Duration is a measure of the sensitivity of the price of a bond to changes in the

interest rate at which the bond is discounted. It is risk measurement tool of bond.
P = Price of the bond
D=Duration=(t*c(t)/(1+r)^t)/P
MDuration=Duration/(1+(Yield to Maturity/Number of coupon payments per year)
Mduration implies Macauley Duration.

YTM
Coupon Rate
Year

7%
7%
Coupon
1
2
3
4
5
6
7
8
9
10

Duration
Mduration

70
70
70
70
70
70
70
70
70
1070
7.5152322
7.0235815 7.0235815

Effects of Coupon and Maturity on Duration

Current Date
Maturity Date
Maturity in Years
YTM
Coupon
Face value
Duration

05/21/1996
05/21/2017
21
15%
4%
1000

5/21/1996
5/21/2017

9.011032

Maturity
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75

Duration
9.011032
4.5163044
7.482723
8.8148185
9.0398233
8.7880901
8.446084
8.1632621
7.9669103
7.842099
7.7667672
7.7227982
7.6977261
7.6836724
7.675898
7.6716421

Coupon rate=4%, YTM

10
9
8
7
6
5
4
3
2
1
0
5

15

25

35

45

80
85
90
95
100
105

7.669332
7.6680871
7.6674203
7.6670649
7.6668764
7.6667767

15

25

35

45

Coupon rate=4%, YTM=15%

9.011031954

45

55

65

75

85

95

105

45

55

65

75

85

95

105