A COMPREHENSIVE CASE STUDY ON FIXED INCOME
SECURITIES 1
Company, Elite Capital and Finance Services Limited,
A went to an Indian Institute of Management (IIM) for
placement for their Treasury Department. They were looking
for 2-3 students who had strong analytical capabilities and
strong understanding about Fixed Income Securities. For
testing these skills and capabilities of the students looking
for placement in the Company, the students were given the following
case studies which they have to complete within two hours and
submit.
Case Study#1
A leading bank of India was holding 30 lakh bonds of 754GS2029.
The bond had a coupon of 7.54% paid semi-annually on March 31
and September 30 every year. The maturity date of the bond is March
31, 2029. These bonds are categorized as ‘Available for Sale’. Hence,
they are supposed to be mark-to-market on the Balance Sheet date
of March 31, 2024. Unfortunately, the bond was not traded at all
during March 2024. Hence, the market price was not readily
available.
1
This case is developed by Prof. C. P. Gupta.
The Corporate Accounting Department of the Bank requested the
Treasury Department to provide the valuation of these bonds. For
this purpose, the Head of the Treasury Department asked to get the
necessary data regarding the trading of the GOI bonds. Since March
31, 2024 was Sunday and March 30, 2024 was Saturday, it was
decided to take the bond prices on the last trading day of the FY
2023-24, i.e. March 29, 2024.
The necessary information had been obtained for the relevant bonds
trading on March 29, 2024, and given in Table 1 below.
Table 1
S. No. Security Coupon Rate Price Time to Maturity
1 DTB 08052025 0.00% Rs.96.7801 6 Months
2 DTB 06112025 0.00% Rs.93.5815 1 Year
3 7.54% GOI bond 2025 7.54% Rs.100.8391 1.5 Year
4 7.18% GOI bond 2026 7.18% Rs.100.3296 2 Year
5 7.26% GOI bond 2027 7.26% Rs.100.4871 2.5 Year
6 7.35% GOI bond 2027 7.35% Rs.100.7005 3 Year
7 7.40% GOI bond 2028 7.40% Rs.100.7730 3.5 Year
8 7.42% GOI bond 2028 7.42% Rs.100.8699 4 Year
9 7.45% GOI bond 2028 7.45% Rs.100.8565 4.5 Year
10 7.52% GOI bond 2029 7.52% Rs.101.3045 5 Year
11 7.57% GOI bond 2030 7.57% Rs.101.7218 5.5 Year
12 7.62% GOI bond 2030 7.62% Rs.102.1621 6Year
(Please note that all the coupon-bearing bonds pay coupon semi-
annually)
Assume that you were working in the Treasury Department of the
Bank and had been asked to do the valuation of the bonds.
Required
Determine the valuation of the said 30 lakh bonds of 754GS2029 for
the purpose of reporting in the Balance Sheet as on March 31, 2024.
Case Study#2
Assume that the data in Table 1 is of different AAA Corporate Bonds
trading in the WDM Segment of the BSE. Further, assume that you
are a Financial Consultant and Advisor to a company that is planning
to raise funds by issuing 5 years Debentures that got a rating of AAA.
The Company has decided to pay coupons semi-annually. It further
has decided to issue the debentures at par and redeem them at par.
Required
As a financial consultant and advisor to the company, you are
required to suggest the coupon rate at which the company should
issue the debentures. So, using the data given in Table 1, what
should be the coupon rate at which the Company should issue the
debentures?
