Management of Bonds

Valuation of Bonds
VB= PV of all Future Cashflows from the bond
Cashflows: Interest & Maturity Value
To calculate PV, we need Disc Rate
Discounted Rate: Required rate of return of an investor

Please Notif required rate = coupon rate Known as Par Bond

if Required Rate<Coupon Rate Know as Premium Bond
If required Rate> Coupon rate Discount Bond

Value of a redeemable bond where int paid annually

Formula I*PV+MV*DF

Value of a perpetual bond where int paid annually

Formula B0= I/R

If Fluchtuation Coupon or If bond is amortized

For example, if there is a 10 year bond and Investor will get 50% of the principal value at 5th year, 25% at 7th Year and rest at

Q1 Face Value 1000

Coupon 9%
Required Return 10.00%
Years of Maturity 5
Payment Frquency 1
PV $962.09

Q. 2 Face Value 1000

Coupon 10%
Required Return 8%
Years of Maturity 8
Payment Frquency 1
Amortized 125
year, 25% at 7th Year and rest at 10th year