BOND

INTRODUCTION OF BOND:-
1) A bond is a debt instrument issued by govrnment,
corporations and other entities for raise fund

DEFINITION OF BONDS
1)A bond is a (written and signed promised) debt
investment in which an investor loans money to an
entity( typically corporate or governmental) which
borrows the funds for a defined periods of a time at
a variable of fixed interest rate(coupon rate)

HISTORY OF BONDS
1)Bonds have been around for thousand of years,
dating back to as far as 2400 BC.
2)Throughout the centuries, the use of bond has grown
exponentially, with both governmets and companies using securities
for crucial funding.
 WHAT IS A BOND?
• A long- term debt instrument under which
the issuer owes the holders a debt and
depending on the terms of the bond, is
obliged to pay them interest and/or to
repay the principal at a later date, termed
the maturity date
• Bond are sometimes called fixed income
securities
 MAJOR TYPES OF BONDS
Column1 Column2 Column3 Column4
1)GOVERNMET BONDS
2)MUNCIPAL BONDS
3)CORPORATION BONDS
4)ZERO-COUPON BONDS

Explation by types of bonds

1)Governments bonds:- It is also known as Treasury Bond.
it is issued by a national government, generally with a promised to pay
periodic interest payment and to repay the face value on the maturity.

2)Muncial bonds:- A bonds issued by state or local government or any of

there agencies. Interest from these bonds is generally tax-free to residents but in som
interest is federally taxable

3)Corporation bonds:- Abond which is issued by corporation in order to

raise financial for a verify of reason, such as to ongoing operation or to expand bus

4)Zero-coupon bond:- It is also known as an "accrual bonds" is a debt

security that dosen't pay interest(coupon) but is traded at a discount, rendering prof
at a maturity when the bond is redeemed for its full face value.
 reasury Bond.
ly with a promised to pay
e value on the maturity.

local government or any of

enerally tax-free to residents but in some cases,

by corporation in order to
o ongoing operation or to expand business.

"accrual bonds" is a debt

is traded at a discount, rendering profit
its full face value.
 CLEAN PRICE AND DIRTY PRICE

DATE OF ISSUE 1/1/2020

FACE VALUE OF BOND 100
COUPON RATE 10% SEMI-ANNUALLY

SELLING DATE OF BOND 10/1/2020

PRICE OF BOND ON 1 OCT 2020 110

ACCRUED INTEREST 2.5

CLEAN PRICE 110

DIRTY PRICE 112.5
 INTEREST RATE FUTURES

BORROWER IS EXPECTING THAT THE INTEREST RATES ARE GOING TO INCREASE

AMOUNT TO BE BORROWED 1000000
BORROWING PERIOD 1 YEAR
LOAN REQUIRED APRIL MONTH

A ( INCREASE IN INT. RATE) B (DECREASE IN INT. RATE)

MONTH JAN APRIL APRIL
INT RATES 10% 12% 9%
INT RATE FUTURES (IRF) 90% 88% 91%
NET CASH OUTFLOW ? ?

WHICH SCENARIO WILL GIVE A LESSER OUTFLOW OF CASH ?

( NET AMOUNT THAT THE PERSON IS GOING TO PAY WILL BE LESS)
 NET CASH OU

O INCREASE AGREED INT RATE

ACTUAL INT. RATE
AGREED INT. RATE FUTURE
ACTUAL INT. RATE FUTURE
(GAIN)/LOSS
FUTURE (RECEIPTS)/PAYMENTS

INT PAYMENT AFTER 1 YEAR

NET CASH OUTFLOW

E LESS)
 NET CASH OUTFLOW
IF RATE TURNS OUT TO BE 12% IF RATE TURNS OUT TO BE 9%
10% 10%
12% 9%
90% 90%
88% 91%
-2% 1%
-20000 10000

120000 90000

100000 100000
 WHAT IS YIELD?
Yield refers to the earnings generated and realized on an investment over a
particular period of time. It's expressed as a percentage based on the invested
amount, current market value, or face value of the security.

Yield includes the interest earned or dividends received from holding a

particular security. Depending on the valuation (fixed vs. fluctuating) of the
security, yields may be classified as known or anticipated.
 ment over a
on the invested

uating) of the
 YIELD TO MATURITY
Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures Yield to maturity is conside

Yield to Maturity Formula = [C + (F-P)/n] / [(F+P)/2]

Where,
C is the Coupon.
F is the Face Value of the bond.
P is the current market price.
n will be the years to maturity.

EXAMPLE:- 1) YIEDL TO MATURITY:- ANNUAL 2)YIELD TO MATURITY:- SEMI

BOND FACE VALUE:- 5100 BOND FACE VALUE:- 10
BOND PRICE:- 5200 BOND PRICE:- 900
COUPON RATE :- 5% COUPON RATE:- 6%
YEAR TO MATURITY:- 3 YEARS YEARS TO MATURITY:- 5 Y

YIELD TO MATURITY:- 4.29% YIELD TO MATURITY:- 8.

 eld to maturity is considered a long-term bond yield but is expressed as an annual rate.

MATURITY:- SEMI ANNUAL 3)YIEDL TO MATURITY:- QUARTELY

FACE VALUE:- 1000 BOND FACE VALUE:- 1500
OND PRICE:- 900 BOND PRICE:- 1000
UPON RATE:- 6% COUPON RATE:- 8%
O MATURITY:- 5 YEARS YEARS TO MATURITY :- 10 YEARS

O MATURITY:- 8.54% YIELD TO MATURITY:- 14.32%

 BOND DURATION

SCENARIO - 1
BOND A BOND B
MATURITY PERIOD 10 YEARS 10 YEARS
COUPON RATE 10% 9%

SCENARIO - 2
BOND A BOND B
MATURITY PERIOD 10 YEARS 5 YEARS
COUPON RATE 10% 10%
 MATURITY VALUE 10000
YEILD TO MATURITY 9%
COUPON RATE 10% ​MacD=∑n​CFf/(1+(Y/K))^f*Tf/PV
MATURITY PERIOD 10 YEARS

YEAR CASH FLOW PRESENT VALUE OF CF WIEGHTED TIME TIME PERIOD*WIEGHTED TIME
1 1000 ₹ 917.43 0.0862 0.0862
2 1000 ₹ 841.68 0.0791 0.1582
3 1000 ₹ 772.18 0.0726 0.2177
4 1000 ₹ 708.43 0.0666 0.2663
5 1000 ₹ 649.93 0.0611 0.3054
6 1000 ₹ 596.27 0.0560 0.3362
7 1000 ₹ 547.03 0.0514 0.3598
8 1000 ₹ 501.87 0.0472 0.3773
9 1000 ₹ 460.43 0.0433 0.3894
10 1000 ₹ 422.41 0.0397 0.3969
10 10000 ₹ 4,224.11 0.3969 3.9694
PV OF ALL CFS ₹ 10,641.77 DURATION 6.8627
MACAULAY DURATION
 ModD= MacD/(1+YTM)

CHANGE IN INTEREST 1%
% CHANGE IN PRICE OF BOND 6.30%
MODIFIED DURATION
 BOND MATHEMATICS
INTRODUCTION OF BOND MATHEMATICS
Bond math explores the idea and assumption behind commonly used statistics
on risk and return for indivaidual bonds and on fixed income portfolios…

These calculations are used on traditional fixed-rate and zero-coupon bonds,as well as floati
notes, inflation-indexed securities, and interest rate swaps…

Zero coupon bond definition

A zero-coupon bond is a bond bought at a price lower than its face value, with the face valu
It does not make perioidic interest payment. When the bond reaches maturity, its investor re
deep discount bond.

FORMULA
The zero-coupon bond vaule calculation formula as follows.

ZERO COUPON BOND VALUE- F / (1 + r)t

Where:
F = face value of bond
r = rate or yield
t = time to maturity
d statistics

n bonds,as well as floating-rate

value, with the face value rapid at the time of maturity.

maturity, its investor received its face value.it is also called a discount bond or