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Fixed Income Analysis Workbook Series
Fixed Income Analysis
Traditional Return Measure
From this sheet you will learn:
The computations needed to find the reinvestment income of a bond.
Understand when and how to use the table function
Visit www.edupristine.com to download more spreadsheets from our Xcel in
Fixed Income Analysis Workbook Series
Fixed Income Analysis
Traditional Return Measure
From this sheet you will learn:
The computations needed to find the reinvestment income of a bond.
Understand when and how to use the table function
Question
Consider a Bond with the following characteristics:






If the market rate for this bond is 6%, find:
i. The price of the bond
ii. All possible realized yield based on reinvestment income.
Bond Valuation Process
Notional amount $ 100
Coupon % 5%
Coupon $ 5
Tenure Years 10
1-Jan-10 31-Jan-11
Year 0 Year 01
Interest Rate 6.00% 6.00%
Discount Factor 1.00 0.94
Future Factor 1.79 1.69
Cash Flow from the Bond
Coupon Payments $ 5
Face Value of the Bond $ -
Total Cashflow during the Year $ 5
Present Value of the Cash Flows
Present Value of the Cashflow $ 5
Price of the Fixed Rate Bond $ 92.64
Reinvestment Income
Reinvested Amount $ 8
Future Value $ 166
Reinvestment Income $ 16
Cummulative Annual Growth Rate 6.00%
Bond Equivalent Yield 5.91%
Effective Annual Yield 6.00%
Relationships between Parameters
Reinvestment
Income
16
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
40
50
60
70
I
n
t
e
r
e
s
t

R
a
t
e

-
10
20
30
40
0%
31-Jan-12 31-Jan-13 31-Jan-14 31-Jan-15 31-Jan-16 31-Jan-17 31-Jan-18
Year 02 Year 03 Year 04 Year 05 Year 06 Year 07 Year 08
6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
0.89 0.84 0.79 0.75 0.70 0.67 0.63
1.59 1.50 1.42 1.34 1.26 1.19 1.12
5 5 5 5 5 5 5
- - - - - - -
5 5 5 5 5 5 5
4 4 4 4 4 3 3
8 8 7 7 6 6 6
1% 2% 3% 4% 5% 6% 7%
0 1 1 2 2 3 3
1 2 3 4 5 6 7
1 3 4 6 7 9 10
2 4 6 8 10 12 14
3 5 8 10 13 15 18
3 6 10 13 16 19 22
4 8 11 15 19 23 27
4 9 13 18 22 27 31
5 10 16 21 26 31 36
6 12 18 24 30 36 42
Reinvestment Income vs. YTM and Coupon
Coupon
2% 4% 6% 8% 10%
Reinvestment vs Coupon Reinvestment vs YTM
156 255 - 168
- 199 97 239
6 205 - 206
31-Jan-19 31-Jan-20
Year 09 Year 10
6.00% 6.00%
0.59 0.56
1.06 1.00
5 5
- 100
5 105
3 59
5 105
8% 9% 10%
4 4 5
8 9 9
12 13 15
16 18 20
21 23 26
25 29 32
31 34 38
36 40 45
42 47 52
47 53 59
12%