uL81 lnS18uMLn1S

resenLed by
reeLl !aln
nlvedlLa Core
neena kara[gl
8aLhl SwaLl
arakh Sapana
8lsk ln uebL
1 lnLeresL raLe rlsk
2 lnflaLlon rlsk
3 8eal lnLeresL raLe rlsk
4 uefaulL rlsk
3 lorelgn exchange rlsk
6 8elnvesLmenL rlsk
lnnovaLlon ln uebL SecurlLles
1. Deep Discount Bonds
2. Floating Rate Bonds
3. Commodity Linked Bonds
4. Bonds with Embedded Option
W Convertible Bonds
W Collable Bonds
W Puttable Bond
5. Extended Notes
6. Structured Notes
7. Inverse Floaters
8. Junk Bonds
8ond valuaLlon
W 1he process of valuaLlon of bond ls relaLlvely slmple
because mosL of relaLed cash flows are
l ln Lhe annulLy form
ll Are known wlLh cerLalnlLy
1he value of bond may be deflned as Lhe sum of Lhe
presenL values of Lhe fuLure lnLeresLs paymenLs plus Lhe
presenL values of Lhe redempLlon repaymenL 1he
approprlaLe dlscounL raLes Lo flnd ouL Lhe presenL value
wold be Lhe requlred raLe of reLurn kd whlch depends
upon Lhe prevalllng rlsk free lnLeresL raLe and Lhe rlsk
premlum
W 1he baslc valuaLlon model may be modlfled Lo
flnd ouL Lhe value of a bond as follows
8C
Where
8C
Annual lnLeresL paymenL sLarLlng one year from now Llll Lhe end of
year n
I redempLlon repaymenL aL Lhe end of year n
approprlaLe dlscounL raLe
l1
n
lnLl
(1 + k)l
+
I
(1 + k)n
A value of bond aLe presenL
8Cnu ?lLLu
W ?leld ls commonly used parameLer ln Lhe lnvesLmenL
process ?leld provldes a common benchmark for
evaluaLlng dlfferenL lnvL lnsLrumenLs also amongsL a
slmllar class of lnsLrumenLs 8ond yleld refers Lo Lhe
raLe of reLurn on Lhe amounL lnvesLed ln buylng one
bond varlous facLors on whlch bond yleld depends
are
W ar value
W Coupon raLe
W MaLurlLy
W MarkeL rlce
1ypes of yleld
W CurrenL ?leld or 8aslc ?leld
W ?leld Lo MaLurlLy