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Book 1

The document discusses bond valuation and sensitivity analysis. It provides the cash flows and yield to maturity calculations for a bond with a face value of Rs. 100, coupon rate of 7%, and maturity of 5 years. It then shows how the bond value changes as the yield to maturity changes from 1% to 25%. It also defines and calculates the Macaulay duration and modified duration of the bond to analyze how its price will change in response to changes in interest rates.

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Naman Kapoor
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38 views3 pages

Book 1

The document discusses bond valuation and sensitivity analysis. It provides the cash flows and yield to maturity calculations for a bond with a face value of Rs. 100, coupon rate of 7%, and maturity of 5 years. It then shows how the bond value changes as the yield to maturity changes from 1% to 25%. It also defines and calculates the Macaulay duration and modified duration of the bond to analyze how its price will change in response to changes in interest rates.

Uploaded by

Naman Kapoor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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face value 100 year cf

coupon 7% 1 7
coupon 7 2 7
tenure 5 3 7
4 7
5 107
Pv of bond=pv of bond at discounting factor at required rate of return
required rate of return = yield to maturity 8%

value of bond today = ₹ 96.01 =NPV(G9,E3:E7)


₹ -96.01 =PV(G9,5,7,100,)

YTM VALUE
1% ₹ 129.12
2% ₹ 123.57
3% ₹ 118.32
4% ₹ 113.36
5% ₹ 108.66
6% ₹ 104.21
7% ₹ 100.00
8% ₹ 96.01
9% ₹ 92.22
10% ₹ 88.63
11% ₹ 85.22
12% ₹ 81.98
13% ₹ 78.90
14% ₹ 75.97
15% ₹ 73.18
16% ₹ 70.53
17% ₹ 68.01
18% ₹ 65.60
19% ₹ 63.31
20% ₹ 61.12
21% ₹ 59.04
22% ₹ 57.05
23% ₹ 55.14
24% ₹ 53.33
25% ₹ 51.59
sensitivity of bond value

FACE 100
COUPON 8%
80
TENURE 3
YTM 10%
₹ 1,010.37

METHOD -1 FOR CALCULATING YTM / MODOFIED DURATION

YEAR(T) CF PV PV*T
1 80 ₹ 72.73 ₹ 72.73
2 80 ₹ 66.12 ₹ 132.23
3 1080 ₹ 811.42 ###
₹ 950.26 ###

MACAULAY DURATION - - WEIGHTED AVERAGE TIME PERIODS OF B

MODIFIED DURATION MAC(D)/(1+YTM)


2.52 TIMES
INTER

SHORT CUT METHOD


YTM 10% 9.99% 10.01%
PRICE ₹ 950.26 ₹ 950.50 ₹ 950.02

MD= PH-PL ₹ 0.48 2.52


2*P0*0.01% ₹ 0.19
YTM= MODIFIED DURATION

IF MD=5 THIS MEANS THE YTM CHANGES BY 1%, BOND VALUE CHANGES BY 5%

D AVERAGE TIME PERIODS OF BONDS


SUM(W*X)/SUM(W)
SUM(PV*t)/SUM(PV)
2.78 TIMES

FOR 1% CHANGE IN YTM THERE WILL BE 2.52 % CHANGE IN B.V

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