MARKET VALUE OF BOND

VB

M
(1+Kd)n

(1+Kd)

VB= Market Price of Bond

M= Face value of bond
N= Term to maturity in years
I = Coupon Interest Payment
Kd= Yield to Maturity
INPUT

OUTPUT

Annual Interest Payment

coupon interest rate
required return
number of years to maturity
par value
Bond value

100
10%
12%
10
1000
887.00

RETURNS
2%
4%
6%
8%
10%
12%
14%
16%

1718.61
1486.65
1294.40
1134.20
1000.00
887.00
791.36
710.01

2000.00
1800.00
1600.00
1400.00
1200.00
1000.00

Series1

800.00
600.00
400.00
200.00
0.00
2%

4%

6%

8%

10%

12%

14%

16%

YIELD TO MATURITY

C + (F-Po)/n
(F+Po)/2

YTM =

YTM
C
F
Po
n

Yield to Maturity
Coupon / Interest Payment
Face Value
Price of bond
Years to maturity

INPUT
Annual Interest Payment ( C)
number of years to maturity (n)
par value ( F)
Bond value ( Po)

100
10
1000
887.00

OUTPUT

Yield to Maturity

12%

YTM
2%
4%
6%
8%
10%
12%
14%
15%
16%

Bond price
1718
1486
1294
1134
1000
887.00
791
710.01
650

2000
1800
1600
1400
1200
1000
800
600
400
200
0
2%

2%

GRAPH

Series1

2%

4%

6%

8%

10%

12%

14%

15%

16%

2%

4%

6%

8%

10%

12%

14%

15%

16%

CONVEXITY AND DURATION OF BONDS

2
1 i
C=
1

t t

1 i
CFt

t =1

Mac

VB

t
CFt
i
VB

Term to maturity
Cash Flow in Period t

D Mac
C
D Mod

Duration of Bonds

Yield to Maturity
Bond Price
Convexity of Bonds
Modified Duration of Bonds

INPUT
Bond Price
Face Value
Coupon Rate
No. of Years
Yield to maturity
Frequency of
Payment

927.90
1000
10%
5
12%
1

OUTPUT
Duration
Modified Duration
Convexity

4.14
3.69
9.239

Cash Flow
(CFt)

Periods (T)
0
1
2

-927.90
100.00
100.00

t(t+1)CFt/
PV of Cash Flow
89.29
79.72

CFt /(1+i) X T
89.29
159.44

(1+i)2
142.36
381.31

3
4
5

100.00
100.00
1100.00

71.18
63.55
624.17

213.53
254.21
3120.85

680.91
1013.26
14927.52

927.90

3837.31

17145.37

t=1

CF

1
V

i
B

D Mod

DUR
(1+i)