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    Bond Calculation

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    ARUN PRATAP SINGH
    This document summarizes the key calculations and concepts for valuing a bond. It shows the present value and cash flow calculations for a 5 year bond with a $100 face value and 10% annual coupon payments. It then demonstrates how to calculate the bond's yield to maturity by changing the discount rate until the calculated price equals the face value, arriving at a yield of 7%. Finally, it defines the concepts of premium, par, and discount prices relative to the face value and coupon rate, and introduces duration as a measure of how much a bond's price will change given a change in market yields.

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    Bond Calculation

    Uploaded by

    ARUN PRATAP SINGH
    25 views2 pages
    This document summarizes the key calculations and concepts for valuing a bond. It shows the present value and cash flow calculations for a 5 year bond with a $100 face value and 10% annual coupon payments. It then demonstrates how to calculate the bond's yield to maturity by changing the discount rate until the calculated price equals the face value, arriving at a yield of 7%. Finally, it defines the concepts of premium, par, and discount prices relative to the face value and coupon rate, and introduces duration as a measure of how much a bond's price will change given a change in market yields.

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    Bond calculation

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    This document summarizes the key calculations and concepts for valuing a bond. It shows the present value and cash flow calculations for a 5 year bond with a $100 face value and 10% annual coupon payments. It then demonstrates how to calculate the bond's yield to maturity by changing the discount rate until the calculated price equals the face value, arriving at a yield of 7%. Finally, it defines the concepts of premium, par, and discount prices relative to the face value and coupon rate, and introduces duration as a measure of how much a bond's price will change given a change in market yields.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    25 views2 pages

    Bond Calculation

    Uploaded by

    ARUN PRATAP SINGH
    This document summarizes the key calculations and concepts for valuing a bond. It shows the present value and cash flow calculations for a 5 year bond with a $100 face value and 10% annual coupon payments. It then demonstrates how to calculate the bond's yield to maturity by changing the discount rate until the calculated price equals the face value, arriving at a yield of 7%. Finally, it defines the concepts of premium, par, and discount prices relative to the face value and coupon rate, and introduces duration as a measure of how much a bond's price will change given a change in market yields.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 2

    Bond Year Coupon FV paymenTotal PaymPV Factor PV

    Face value 100 1 10 0 10 0.934579 9.345794


    Coupon rate 10% 2 10 0 10 0.873439 8.734387
    Payment Annual 10 3 10 0 10 0.816298 8.162979
    YTM 7% 4 10 0 10 0.762895 7.628952
    Constant Discount Factor 5 10 100 110 0.712986 78.42848
    Year Discount RPV Factor Price of BoPV Future 112.3006
    100 1 4.00% 0.961538 5 0 5 4.807692 0.909091 4.545455
    5% 2 4.50% 0.91573 5 0 5 4.57865 0.826446 4.132231
    3 4.75% 0.870037 5 0 5 4.350187 0.751315 3.756574
    4 4.90% 0.825844 5 0 5 4.12922 0.683013 3.415067
    5 5% 0.783526 5 100 105 82.27025 0.620921 65.19674
    Price of Bond 100.136 81.04607
    Yiled to Maturity (YTM) for bond YTM 0.1

    Step 01 Assume a discount rate same for all year


    Step 02 Calculate the price (sum of all PV based on assumed discount factor)
    Step 03 Use Goal Seek
    Step 04 New Price
    Set value equal to Previous
    Changing assumed discount rate
    year Coupon PaFV PaymenTotal Cash PV factor PV of Cash
    10 100 5 years 1 10 0 10 0.892857 8.928571
    Bond 4 10% 2 10 0 10 0.797194 7.971939
    12% 3 10 0 10 0.71178 7.117802
    Annual frequency 4 10 0 10 0.635518 6.355181
    5 10 100 110 0.567427 62.41695
    Price 92.79045
    Price FaceValue Coupon Rate Yield (Market Return)
    Premium > 10% > 6%
    At Par ValuPrice EQUAL Face Value 10% equal 10%
    Discount Less 10% < 12%

    If there is any change in I (Discount rate

    Change in Price = -DP/p = Mo


    time*PV of Cashflow
    8.928571
    15.94388
    21.35341
    25.42072
    312.0848
    383.7314
    Yield (Market Return)Duration
    4.135462 Dollar (Rs) Duration
    Macaulay Duration

    Modifide Duration =Duration /(1+i)

    any change in I (Discount rate/ Market Return)

    Change in Price = -DP/p = Modifide duration *Di

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