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  • Bond Valuation Examples

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    Kaushik Chopra
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    The document contains information about three types of bonds: a coupon bond, a zero coupon bond, and a perpetuity bond. It provides the coupon rate, face value, maturity details, future cash flows, and market yield for calculating the present value of each bond, which represents the price the company can expect to sell the bond for. The coupon bond pays 8% annual interest and has a face value of $100 maturing in 5 years. The zero coupon bond has a 0% coupon and face value of $100, maturing in 5 years at $172.88. The perpetuity bond pays a 10% coupon with no maturity date, so its present value is calculated as the coupon divided by the market yield of 12

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    Bond Valuation Examples

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    The document contains information about three types of bonds: a coupon bond, a zero coupon bond, and a perpetuity bond. It provides the coupon rate, face value, maturity details, future cash flows, and market yield for calculating the present value of each bond, which represents the price the company can expect to sell the bond for. The coupon bond pays 8% annual interest and has a face value of $100 maturing in 5 years. The zero coupon bond has a 0% coupon and face value of $100, maturing in 5 years at $172.88. The perpetuity bond pays a 10% coupon with no maturity date, so its present value is calculated as the coupon divided by the market yield of 12

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    6 views2 pages

    Bond Valuation Examples

    Uploaded by

    Kaushik Chopra
    The document contains information about three types of bonds: a coupon bond, a zero coupon bond, and a perpetuity bond. It provides the coupon rate, face value, maturity details, future cash flows, and market yield for calculating the present value of each bond, which represents the price the company can expect to sell the bond for. The coupon bond pays 8% annual interest and has a face value of $100 maturing in 5 years. The zero coupon bond has a 0% coupon and face value of $100, maturing in 5 years at $172.88. The perpetuity bond pays a 10% coupon with no maturity date, so its present value is calculated as the coupon divided by the market yield of 12

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 2

    Coupon Bond

    n
    I MV
    Coupon 8% Value  
    t 1 (1  r ) t

    (1  r ) n
    Face Value 100
    Maturity 5 (years)
    Maturity Value 125
    Year
    1 2 3 4 5
    Future Cash Flow 8 8 8 8 133

    Market Yield for a bond of the same risk and maturity: 9%

    Present Value Rs. 112.36 Premium


    (or market value)

    The Present Value is the price that the company can realistically expect to "sell" its bond for.

    Zero Coupon Bond

    Coupon 0% MV
    Value 
    Face Value 100 (1  r ) n
    Maturity 5 (years)
    Maturity Value 172.88
    Year
    1 2 3 4 5
    Future Cash Flow 0 0 0 0 172.88

    Market Yield for a bond of the same risk and maturity: 9%

    Present Value Rs. 112.36 Premium


    (or market value)

    The Present Value is the price that the company can realistically expect to "sell" its bond for.

    Perpetuity 
    I
    Value   (1  r ) t
     I /r
    Coupon 10% t 1
    Face Value 100
    Maturity ¥ (years)

    Market Yield for a bond of the same risk and maturity: 12%

    (or market value) Rs. 83.33 Using the formula (preferred)

    As can be seen the market value is at a Discount

    The Present Value is the price that the company can realistically expect to "sell" its bond for.

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