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Valuation of Bonds Arti Pradhan
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[object Object],  Bond A Bond B Face value Rs. 1000 Rs. 1000 Coupon Rate 10% 10% Maturity Period 5 years 10 years Yield 15% 15% Price Rs. 832.39 Rs. 749
[object Object],[object Object],Years to Maturity Present Value/Price (in Rs.) 5 620 4 683 3 751 2 826.4 1 909.1
 
[object Object],[object Object],[object Object]
[object Object],Bond A Bond B Coupon rate 10% 8% Yield 8% 8% Maturity period 3 3 Price Rs. 105.15 Rs. 100 Face value Rs. 100.00 Rs. 100 Yield Raise 1% 1% Price after yield raises Rs. 102.53 Rs. 97.47 Percentage change in price 2.4% 2.53%
[object Object],[object Object],[object Object],[object Object]
Source: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/   (15 July,2010) COUPON MATURITY PRICE/YIELD 3-Month 0.000 10/14/2010 0.14 / .15 6-Month 0.000 01/13/2011 0.18 / .18 12-Month 0.000 06/30/2011 0.26 / .26 2-Year 0.625 06/30/2012 100-01½ / .60 3-Year 1.000 07/15/2013 99-31 / 1.01 5-Year 1.875 06/30/2015 100-12½ / 1.79 7-Year 2.500 06/30/2017 100-08 / 2.46 10-Year 3.500 05/15/2020 103-31+ / 3.03 30-Year 4.375 05/15/2040 106-09+ / 4.01
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[object Object],[object Object],[object Object],Where P 0  = Market Price of the Bond
[object Object],Bond A Bond B Face Value Rs 1000 Rs 1000 Coupon rate 8% 9% Years to maturity 3 3 Macaulay’s Duration 2.7861 2.7654
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Chapter iv