Bond Properties with Hypothetical Examples

Example-1
Bond Coupon Rate
10%
Redemption Price
1000
Maturity
2
Current Yield
11%
(a) Interest Payments are annual
1
2
100
1100
90.09
892.78
(b) Interest Payments are semi-annual
1
2
50
50
47.39
44.92

Intrinsic value of the bond

982.87
3
50
42.58

4
1050
847.58

982.47

Example-2
Settlement
Maturity
Rate
Yield
Redemption
Frequency
Basis
Price
7.75%
8.00%
8.25%
8.50%
8.75%
9.00%
9.50%
10.00%
10.50%
11.00%
11.50%
12.00%
12.50%

8-Mar-06
8-Mar-12
10.00%
8.00%
100
2
4
109.39

8-Mar-06
8-Mar-12
10.00%
9.50%
100
2
4
102.25

110.64
109.39
108.15
106.94
105.74
104.56
102.25
100.00
97.82
95.69
93.63
91.62
89.66

-1.130%
-1.134%
-1.119%
-1.122%
-1.117%
-2.211%
-2.198%
-2.185%
-2.172%
-2.159%
-2.146%
-2.133%

8-Mar-06
8-Mar-12
10.00%
10.00%
100
2
4
100.00

8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06

8-Mar-12 8-Mar-12 8-Mar-12 8-Mar-12 8-Mar-12
10.00%
10.00%
10.00%
10.00%
10.00%
10.50%
11.00%
11.50%
12.00%
12.50%
100
100
100
100
100
2
2
2
2
2
4
4
4
4
4
97.82
95.69
93.63
91.62
89.66

Example-3
A
Settlement
Maturity
Rate
Yield
Redemption
Frequency
Basis
Price

B
8-Mar-06
8-Mar-09
6.00%
9.00%
100
2
4
92.26

8-Mar-06
8-Mar-09
10.00%
9.00%
100
2
4
102.58

C
A
B
C
A
B
C
8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06
8-Mar-09 8-Mar-09 8-Mar-09 8-Mar-09 8-Mar-09 8-Mar-09 8-Mar-09
0.00%
6.00%
10.00%
0.00%
6.00%
10.00%
0.00%
9.00%
8.50%
8.50%
8.50%
9.50%
9.50%
9.50%
100
100
100
100
100
100
100
2
2
2
2
2
2
2
4
4
4
4
4
4
4
76.79
93.50
103.90
77.90
91.05
101.28
75.70

Example-4
A
Settlement
Maturity
Rate
Yield
Redemption
Frequency
Basis
Price

B
8-Mar-06
8-Mar-09
10.00%
7.50%
100
2
4
106.61
1.30%

8-Mar-06
8-Mar-16
10.00%
7.50%
100
2
4
117.37
3.36%

C
A
B
C
8-Mar-06 8-Mar-06 8-Mar-06 8-Mar-06
8-Mar-26 8-Mar-09 8-Mar-16 8-Mar-26
10.00%
10.00%
10.00%
10.00%
7.50%
7.00%
7.00%
7.00%
100
100
100
100
2
2
2
2
4
4
4
4
125.69
107.99
121.32
132.03
5.05%

Obligation to Pay
Liability or Deposit

5600
3000

Bond-A
5611
Bond-B
Coupon
Yield
Principal
Redemption
Maturity

11%
11%
3000
3000
6

Expected Value of the Bond

1
2
3
4
5
6
6

Cash Flows Reinvestment

330
556
330
501
330
451
330
407
330
366
330
330
3000
3000
5611
5611

Bond-C
Coupon
Yield
Principal
Redemption
Required Maturity
Residual Maturity

12%
8%
3000
3000
6
9

Expected Value of the Bond

1
2
3
4
5
6
6
If interesrt rates are at 11%
If interesrt rates are at 12%
If interesrt rates are at 10%

Cash Flows Reinvestment

360
607
360
547
360
492
360
444
360
400
360
360
3309
6158
5922
5849
5998

Intrinsic value of bond after 6 years

1
2
3

360
360
3360

333
309
2667
3309

Bond-D
Coupon
Yield
Principal
Redemption
Required Maturity
Residual Maturity

6.50%
13%
3000
3000
6
12

Expected Value of the Bond

1
2
3
4
5
6
6
If interesrt rates are at 11%
If interesrt rates are at 7%
If interesrt rates are at 10%

Cash Flows Reinvestment

195
329
195
296
195
267
195
240
195
216
195
195
2220
3763
3972
4472
4086

Intrinsic value of bond after 6 years

1
2
3
4
5
6

195
195
195
195
195
3195

173
153
135
120
106
1535
2220

Duration- Simple Example

(For simplicity purpose interest payments are assumed as yearly)
Example 1
Principal
Coupon Rate
Period
Yield
Redemption Price

1000
12.00%
9
11.00%
1000

PV of Cashflows
Period
1
2
3
4
5
6
7
8
9

120
120
120
120
120
120
120
120
1120

108.11
97.39
87.74
79.05
71.21
64.16
57.80
52.07
437.84
1055.37
Duration
Modified Duration

108.11
194.79
263.23
316.19
356.07
384.94
404.59
416.57
3940.52
6385.01
6.05
5.45

Duration- Simple Example

(For simplicity purpose interest payments are assumed as yearly)
Example 1
Principal
Coupon Rate
Period
Yield
Redemption Price

1000
6.50%
12
12.00%
1000

PV of Cashflows
Period
1
2
3
4
5
6
7
8
9
10
11
12

65
65
65
65
65
65
65
65
65
65
65
1065

58.04
51.82
46.27
41.31
36.88
32.93
29.40
26.25
23.44
20.93
18.69
273.36
659.31
Duration
Modified Duration

58.04
103.64
138.80
165.23
184.41
197.59
205.82
210.02
210.96
209.28
205.55
3280.31
5169.63
7.84
7.00

Bond Properties with Actual Data

YTM/ Yield
Security
Settlement
Maturity
Rate
Price
Redemption
Frequency
Basis
Yield of a Security

MDuration
Bond
Settlement
Maturity
Coupon
Yield
Frequency
Basis
Mduration

B
C
D
E
28-Nov-03 28-Nov-03 28-Nov-03 28-Nov-03
###
23-Mar-05 29-Jan-11 30-Mar-09 3-Sep-15 16-Oct-15
12.50%
12.32%
6.96%
7.38%
9.85%
102.53
141.47
108.56
117.65
139.37
100
100
100
100
100
2
2
2
2
2
4
4
4
4
4
10.37%
5.29%
5.11%
5.34%
5.33%

B
C
D
E
28-Nov-03 28-Nov-03 28-Nov-03
###
29-Jan-11 30-Mar-09 3-Sep-15 16-Oct-15
12.32%
6.96%
7.38%
9.85%
5.29%
5.11%
6.02%
6.02%
2
2
2
2
3
3
3
3
5.07
4.43
7.92
7.60

28-Nov-03
23-Mar-04
12.50%
10.37%
2
3
0.30

Bond with Call and Put Options

Security
Settlement
Maturity
Rate
Price
Redemption
Frequency
Basis
Yield of a Security
MDuration
Settlement
Maturity
Coupon
Yield
Frequency
Basis
Mduration

A
21-Jan-03
18-Jul-12
6.72%
106
100
2
3
5.89%
21-Jan-03
18-Jul-12
6.72%
5.89%
2
3
7.04

Convexity
Input Box
Settlement
Maturity
Rate
Price
Redemption
Frequency
Basis
Price
Yield
Mduration
Bond A
Coupon Rate
Term
Initial Yield
Redemption Price
Price

12-Mar-02
12-Mar-08
10.00%
104.00
100
2
3
103.96
9.12%
4.48
10.00%
8
9.12%
100.00
104.00

Period

Cash Flow
1
2
3
4
5
6
7
8
9
10
11
12

5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
105.00

1/
(1+yield)^(t
+2)
t(t+1)CF t(t+1)CF/
0.8747889
0.8366382
0.8001513
0.7652557
0.7318819
0.6999635
0.6694372
0.6402421
0.6123203
0.5856162
0.5600767
0.535651

Convexity Measure

10
30
60
100
150
210
280
360
450
550
660
16380

8.747889
25.09915
48.00908
76.52557
109.7823
146.9923
187.4424
230.4872
275.5441
322.0889
369.6506
8773.964
10574.33
26.44

What is the Price change if the interesrt rate changes by 200 basis points ?
Predicted Price Change
Expected change in Interest rates
-2.00%
Duration effect (- Modified Duration X Yield Change )
8.97%
Convexity effect
0.53%
Estimated Precentage Change in Price
9.50%

10