Redeemable Bond

Annual
Face value of bond 1000
Interest/ coupon rate 10%
Redeemable at the end of third year
Required rate of return 12%

Year
1 100 0.893 89.3
2 100 0.797 79.7
3 100 0.712 71.2
3 1000 0.712 712
952.2

Semi Annual
Face value of bond = Rs. 1000. Interest rate is 10% p.a. which is paid semi-annually. Redeemable at par at the end

Half yearly periods

1 50 0.943 47.15
2 50 0.89 44.5
3 50 0.84 42
4 50 0.792 39.6
5 50 0.747 37.35
6 50 0.705 35.25
6 1000 0.705 705
950.85

Current yield

Redeemable bond

Current yield Interest *100

Current market price of the bond

YTM Rate at which PV of all future cash flows from bond is equal to the curren

Price 102.5
Coupon 3.25%
maturity 1 year
Coupon payment 3.25
face value 100

Intrinsic value of the bond

5%
1 103.25 0.952 98.294

price of the bond is higher than the intrinsic value

4%
1 103.25 0.962 99.3265

3%
1 103.25 0.971 100.25575

2%
1 103.25 0.98 101.185

1.50%
1 103.25 0.985 101.70125

1 103.25 0.99 102.2175

Redeemable at par at the end of 3rd year . Required rate of return is 12%. Calculate IV

m bond is equal to the current market price of the bond

 Average
1. YTM formula Investment*100
2. By discounting future cash flows at ytm we can obtain the price of the bond
3. Assumption- Bonds are redeemed at par / nominal value of 100

Annually

Q1

Outflow 102.5
Inflow 103.25
Income 0.75
Average income 0.75
Average investment 101.25
YTM 0.74%

Double check

103.25 0.99265 102.491112

Q2
Coupon 5.25%
Maturity 2 years
ytm 1.74

Average income/Average investment

Outflow x
Inflow
Installments Cash inflow pv factor Amount
1 5.25 0.983 5.16075
2 5.25 0.966 5.0715
2 100 0.966 96.6
106.83225

Price of the bond 106.83

Double check
Outflow 106.83
Inflow 110.5
Income 3.67
Avg income 1.835
Avg investment 103.415
1.77% (By computing ytm using price of the bond we get 1

Q3
Outflow 107.02
Inflow 113.5
Income 6.48
Average income 2.16
Average investment 103.51
YTM 2%

Double check
Year
1 4.5 0.98 4.41
2 4.5 0.961 4.3245
3 4.5 0.942 4.239
3 100 0.942 94.2
107.1735

Q4

Coupon 2.75%
Maturity 5
ytm 3

Average income/Average investment

Outflow x
Inflow
1 2.75 0.971 2.67
2 2.75 0.943 2.59
3 2.75 0.915 2.52
4 2.75 0.888 2.44
5 2.75 0.863 2.37
5 100 0.863 86.30
98.90

Price of the bond 98.90

Double check
Outflow 98.90
Inflow 113.75
Income 14.86
Avg income 2.971
Avg investment 99.4475
3.0% (By computing ytm using price of the bond we get 3

Q5
Outflow 108.91
Inflow 135
Income 26.09
Average income 3.727142857
Average investment 104.455
YTM 3.57%

Double check
Year
5 6.099 30.50
7 100 0.782 78.20

108.70

Q6

Coupon 3.75%
Maturity 10
ytm 4.04

Average income/Average investment

Outflow x
Inflow
1 3.75 0.961 3.60
2 3.75 0.924 3.47
3 3.75 0.888 3.33
4 3.75 0.853 3.20
5 3.75 0.82 3.08
6 3.75 0.788 2.96
7 3.75 0.758 2.84
8 3.75 0.728 2.73
 9 3.75 0.7 2.63
10 3.75 0.672 2.52
10 100 0.672 67.20
97.55

Price of the bond 97.55

Double check
Outflow 97.55
Inflow 137.5
Income 39.96
Avg income 3.9955
Avg investment 98.7725
4.045% (By computing ytm using price of the bond we get 4

Q7
Outflow 104.93
Inflow 195
Income 90.07
Average income 4.5035
Average investment 102.465
YTM 4.40%

Double check
Year
1-20 4.75 13.12 62.32
20TH YEAR 100 0.422 42.2
104.52

Q8

Coupon 4.50%
Maturity 30
ytm 4.36

Average income/Average investment

Outflow x
Inflow
1-30 4.5 16.56 74.52
30 100 0.278 27.80
102.32
Price of the bond 102.32

Double check
Outflow 102.32
Inflow 235
Income 132.68
Avg income 4.422666667
Avg investment 101.16
4.372% (By computing ytm using price of the bond we get 4

Q9

Outflow 94.96
Inflow 300
Income 205.04
Average income 4.1008
Average investment 97.48
YTM 4.2%

Double check

1-50 4 21.48 85.92

50 100 0.141 14.1
100.02
 Semi Annually

Q1

Outflow 102.5
Inflow 103.25
Income 0.75
Average income 0.375
Average investment 101.25
YTM 0.37%

Double check
(by pv-ing the cash inflows by using ytm rate we get the price of
the bond) 1.625 0.996
1.625 0.993
100 0.993

Q2
Coupon 2.625%
Maturity 4 installments
ytm 0.87%

Installments Cash inflow

1-4 2.625
4 100

106.83225

Price of the bond 106.87425

Double check
 Outflow 106.87425
Inflow 110.5
Income 3.62575
Avg income 0.9064375
Avg investment 103.437125
uting ytm using price of the bond we get 1.7% approx) 0.88%

Q3
Outflow 107.02
Inflow 113.5
Income 6.48
Average income 1.08
Average investment 103.51
YTM 1%

Double check
Year
1-6
6

(by pv-ing the cash inflows by using ytm rate we get the price of
the bond)

Q4

Coupon 1.375
Maturity 10
ytm 1.5

Outflow x
Inflow
1-10 1.375
10 100

Price of the bond 98.88

 Double check
Outflow 98.88
Inflow 113.75
Income 14.87
Avg income 1.486975
Avg investment 99.440125
uting ytm using price of the bond we get 3% approx) 1.5%

Q5
Outflow 108.91
Inflow 135
Income 26.09
Average income 1.863571429
Average investment 104.455
YTM 1.78%

Double check
Year
1-14 2.5
14 100
(by pv-ing the cash inflows by using ytm rate we get the price of
the bond)

Q6

Coupon 1.875%
Maturity 20
ytm 2.02

Inflow
1-20 1.875
20 100
 Price of the bond

Double check
Outflow
Inflow
Income
Avg income
Avg investment
uting ytm using price of the bond we get 4.04% approx)

Outflow 104.93
Inflow 195
Income 90.07
Average income 2.25175
Average investment 102.465
YTM 2.20%

Double check
Year
1-40 2.375
40 100

Coupon 2.25%
Maturity 60
ytm 2.18

Average income/Average investment

Outflow x
Inflow
1-60 2.25
60 100
 Price of the bond 102.30

Double check
Outflow 102.30
Inflow 235
Income 132.70
Avg income 2.211625
Avg investment 101.15125
uting ytm using price of the bond we get 4.36% approx) 2.186%

Outflow 94.96
Inflow 300
Income 205.04
Average income 2.0504
Average investment 97.48
YTM 2.10%

Double check

1-50 2
(by pv-ing the cash inflows by using ytm rate we get the price of 50 100
the bond)
1.62
1.61
99.30
102.53

pvaf Amount
3.914 10.27425
0.966 96.6
106.87425
 2.25 5.795 13.03875
100 0.942 94.2

107.23875

9.222 12.68
0.862 86.20
98.88
12.295 30.74
0.781 78.10

108.84

16.32 30.60
0.67 67.00
97.60
97.6

97.6
137.5
39.9
1.995
98.8
2.019%

26.42 62.7475
0.419 41.9
104.6475

33.29 74.90
0.274 27.40
102.30
 43.1 86.2
0.138 13.8
100