Professional Documents
Culture Documents
Inputs
Market Price
Face value
Rate
NPER
YTM
Settelment date
Maturity date
Coup Numbers
Coup days till now
Coup days to next payment
No of days in coupan period
Coupan
INR 104.10
INR 100.00
8.4000%
2
7.77
25-Mar-2015
28-Jun-2024
9.2583333333
87
93
180
INR 8.40
0.08400
2
0.077718
Outputs
YTM
Accrued Interest
Clean Price
Dirty Price
0.0777
INR 4.0600
USD 104.1008
INR 108.1608
Quoted Price
In order to calculate price of a bond on date which is not a coupan date,accrued interes
Bonds prices are quoted as dirty price which means it includes accrued interest of days f
settlement date.Below is the calculator for calculating dirty price by inputting details
Inputs
Settlement Date
Maturity Date
Rate
Effective Rate
Coupan Amount
YTM
Effective YTM
Face Value
Market price
Frequency
Periods
Days from last Coupan
Days to next coupan
Total days in Coupan
31-Dec-2015
16-Dec-2033
8.91%
0.0891
INR 89.10
7.2644%
0.072644
INR 1,000.00
1
17.96
15
351
366
Outputs
PV of Coupans
INR 878.46
PV of Face Value
INR 283.78
Clean Price
INR 1,162.24
Accrued Interest
INR 3.65
Dirty Price
INR 1,165.90
YTM
Err:523
To find out the price senstivity to yield, Inputs are filled in yellow coloured boxes . Now in Output Boxes (b
which can be used to forcast the changes in price of bond due to change in yield.We can verify
Settelment date
Maturity date
Frequency
Rate
YTM
Face Value
Amount of Coupan
coupan numbers
Pv of coupans
PV of FV
Dirty Price
discount
Inputs
1-Jan-2000
1-Jan-2005
1
7.00%
12.00%
INR 1,000.00
INR 70.00
5
INR 252.33
INR 567.43
INR 819.76
Term to maturity
Duration
Modified Duration
Rupee Duration
PVBP
loured boxes . Now in Output Boxes (blue coloured boxes) , we can see that duration (wieghted ,Mduration and Rupee duration
nd due to change in yield.We can verify this by actually calculating the effect on price due to change in yield which is shown in ta
premium
Outputs
1-Jan-2000
1-Jan-2005
1
0.07
0.12000
INR 1,000.00
INR 70.00
5
Outputs
5.00
4.31
3.85
0.3158
0.0032
e to change in 1 basis
ue to change in a basis
.
par
1-Jan-2000
1-Jan-2005
1
15.00%
12.00%
INR 1,000.00
INR 150.00
5
INR 540.72
INR 567.43
INR 1,108.14
1-Jan-2000
1-Jan-2005
1
12.00%
12.00%
INR 1,000.00
INR 120.00
5
INR 432.57
INR 567.43
INR 1,000.00
819.76
819.76
0.0000015
($1,108.14)
Here we can see that change in the price of bond ,due to change in yield
similar to rupee duration or PVBT(in case increase of 1 BPS).And If
percentage change in price due to change in yield, it will be similar to
Table 2
Price senstivity to Yield
When Yield Increases
Yield
Price
change In Price
12.010%
INR 819.45
0.3157
stors is less.
life of the bond is less
Table 2
ce senstivity to Yield
When yield decreases
11.000%
INR 852.16
32.4029
Suppose we have a portfolio of 10 bonds with different coupan, expiry and ytm on settelment date 29
to calculate the wieghted duration of portfolio according to the price of a particular bond's wieght in t
portfolio value will in
Bond
Face
value
Freq
Maturity
Yield
Rate
100
100
100
100
100
100
100
100
100
100
100
100
1
1
1
1
1
1
1
1
1
1
1
1
25-Aug-2001
9-Jan-2002
7-Apr-2003
23-Mar-2004
12-Aug-2005
10-Apr-2006
28-May-2007
31-Aug-2008
7-Apr-2009
28-Jul-2010
29-Jan-2011
20-Aug-2013
0.0860
0.0741
0.0915
0.0925
0.0942
0.0974
0.0984
0.0992
0.1028
0.1018
0.1050
0.1074
11.75%
11.15%
11.10%
12.50%
11.19%
11.68%
11.90%
11.40%
11.99%
11.30%
12.32%
12.40%
Set date
29-Mar-2001
Coupan
Days for
accrued
interest
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
11.75
11.15
11.10
12.50
11.19
11.68
11.90
11.40
11.99
11.30
12.32
12.40
214
80
352
6
227
349
301
209
352
241
60
219
on settelment date 29 mar 2001. We want to see that by how much amount our portfolio will increase/decrease ,due to change in
ular bond's wieght in total portfolio value.And then we will calculate the mduration of portfolio which will tell us that by what pe
portfolio value will increase/decrease with changes in YTM.
Term to
maturity
Accrued
interest
0.41
0.78
2.02
2.98
4.37
5.03
6.16
7.42
8.02
9.33
9.83
12.39
6.98
2.48
10.85
0.21
7.06
11.32
9.95
6.62
11.72
7.56
2.05
7.54
Clean
Price
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
101.21
102.73
103.46
108.15
106.11
107.44
109.20
107.52
109.05
106.55
110.84
111.09
INR 108.19
INR 105.21
INR 114.31
INR 108.36
INR 113.17
INR 118.76
INR 119.15
INR 114.14
INR 120.77
INR 114.11
INR 112.89
INR 118.63
1367.69
0.37
0.72
1.59
2.45
3.19
3.39
3.99
4.70
4.65
5.37
5.69
6.11
Wieght
0.079
0.077
0.084
0.079
0.083
0.087
0.087
0.083
0.088
0.083
0.083
0.087
1.00
Change in
When yield of the portfolio bonds is increased by 1 %, portfolio value is
value
ased by approximately 3.5 % , which is exactly equal to mduration of the
portfolio(shown in right)
% change
New
after
Weighted M increase
Dur
in
YTM+1
%
0.030
0.056
0.133
0.194
0.264
0.295
0.347
0.392
0.411
0.448
0.470
0.530
3.57
47.084
3.443
107.80
104.46
112.52
105.75
109.65
114.84
114.54
108.98
115.35
108.24
106.74
111.74
1320.61
Case Example
Here pension fund which has to pay back pension fund of Rs. 500000- to one of its investor, with gua
5=734664 in 5th year. So, suppose, pension fund company chooses to fund its obligation with Rs. 20,00
of 5 years). So, if interest rate remains at 8% the amount accrued will exactly be equal to the obligation o
down to 7% and in second case it reaches 9%. In 7% scenario, amount accrued will be equal to Rs. 734
will match the duration of his liabilities with the wieghted duration of bond
Repayment Details
Loan
500000
Rate
0.08
time
734664.038
Period
0.00
1.00
2.00
3.00
4.00
5.00
Case Example
0- to one of its investor, with guaranteed rate of 8% after 5 years. So, it is obligated to pay Rs. 500000 *(1.08) ^
fund its obligation with Rs. 20,000 , of 8% annual coupon bond selling at par value with 6 years maturity(duration
xactly be equal to the obligation of Rs.734664 in 5 years. Now we consider two scenarios, where interest rate goes
t accrued will be equal to Rs. 734702.46 in 5 years and in 9% scenario it will be Rs. 734801.27in 5 years.So if he
th the wieghted duration of bond, he is said to be immunized against interest rate risk
Inflows
40000.00
40000.00
40000.00
40000.00
40000.00
540000.00
0.08
54419.56
50388.48
46656.00
43200.00
40000.00
500000.00
734664.04
Yield
0.07
52431.84
49001.72
45796.00
42800.00
40000.00
504672.90
734702.46
0.09
56463.26
51801.16
47524.00
43600.00
40000.00
495412.84
734801.27
Cash flows at the end of period are discounted by yield prevailing at that time
because he will be repaying loan in fifth year beginning
We need to look up the price of a 10 yr 10% Treasury note. But, there are no Treasuries with a
maturity of 10 yrs that have a 10% coupon rate. we know that you cant price it the same as an 8%
bond, nor the same as a 9 or 11 yr bond.We have put together a series of bonds maturing at different
times every 6 months(Table1).We will discount the first two coupans of 1.5 year bond with yields of
first two bonds and by using solver we will find the third discount rate for 1.5 year bond. keep using
solver upto 10 bonds six months rate.Then we can price the 10 year 10% bond mentioned above
PAR VAL
100 Period
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
Table 1
Coupan
Price
NA
NA
8.5
9
11
9.5
10
10
11.5
8.75
10.5
11
8.5
8.25
11
6.5
8.75
13
11.5
12.5
96.15
92.19
99.45
99.64
103.49
99.49
100
98.72
103.16
92.24
98.38
99.14
86.94
84.24
96.09
72.62
82.97
104.3
95.06
100
BEY
DF
0.0801
0.0830
0.0893
0.0925
0.0947
0.0979
0.1013
0.1059
0.1085
0.1102
0.1117
0.1158
0.1174
0.1199
0.1240
0.1228
0.1255
0.1315
0.1338
0.1362
1.0400
1.0415
1.0447
1.0462
1.0473
1.0489
1.0506
1.0530
1.0542
1.0551
1.0559
1.0579
1.0587
1.0600
1.0620
1.0614
1.0627
1.0658
1.0669
1.0681
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
o Treasuries with a
it the same as an 8%
maturing at different
ar bond with yields of
year bond. keep using
nd mentioned above
COUP RATE
NA
NA
Coupans
Periods
0.50
1.00
We will discount
bond's yield and
yield.For last coupan
of 1.5 years , we w
price of 1.5 year
changing v
8.50
9.00
11.00
9.50
10.00
10.00
4.25
4.50
5.50
4.75
5.00
5.00
1.50
2.00
2.50
3.00
3.50
4.00
96.15
92.19
4.09
4.33
5.29
4.57
4.81
4.81
96.15
92.19
3.92
4.15
5.07
4.38
4.61
4.61
0.5 BOND
92.19
91.45
3.95
4.82
4.17
4.39
4.39
1YEAR BOND
99.45
87.22
4.59
3.96
4.17
4.17
PRICE OF 1.5 YEAR BOND
99.64
83.72
3.77
3.97
3.97
PRICE OF 2 YEAR BOND
3.75
3.75
PRICE OF 2.5 YEAR BOND 103.49 78.64
74.30
3.54
PRICE OF 3 YEAR BOND 99.49
PRICE OF 3.5 YEAR BOND 100.00 69.48
PRICE OF 4 YEAR BOND 98.72
PRICE OF 4.5 YEAR BOND
PRICE OF 5 YEAR BOND
PRICE OF 5.5 YEAR
PRICE OF 6
PRIC
We will discount the first coupan with 0.5 years zero coupan
bond's yield and next coupan by 1 year zero coupan bond's
yield.For last coupan and principal's discounting factor at the end
of 1.5 years , we will use solver by setting target cell as same to
price of 1.5 year bond given and setting discount factor as
changing value for the third and last cash flows
11.50
8.75
10.50
11.00
8.50
8.25
11.00
6.50
8.75
13.00
5.75
4.38
5.25
5.50
4.25
4.13
5.50
3.25
4.38
6.50
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
5.53
4.21
5.05
5.29
4.09
3.97
5.29
3.12
4.21
6.25
5.30
4.03
4.84
5.07
3.92
3.80
5.07
3.00
4.03
5.99
5.04
3.84
4.61
4.82
3.73
3.62
4.82
2.85
3.84
5.70
4.80
3.65
4.38
4.59
3.55
3.44
4.59
2.71
3.65
5.43
4.56
3.47
4.17
4.36
3.37
3.27
4.36
2.58
3.47
5.16
4.32
3.28
3.94
4.13
3.19
3.10
4.13
2.44
3.28
4.88
4.07
3.10
3.72
3.89
3.01
2.92
3.89
2.30
3.10
4.60
3.81
2.90
3.47
3.64
2.81
2.73
3.64
2.15
2.90
4.30
65.73
2.72
3.26
3.42
2.64
2.56
3.42
2.02
2.72
4.04
103.16 61.04
3.07
3.22
2.49
2.41
3.22
1.90
2.56
3.80
3.02
2.34
2.27
3.02
1.79
2.41
3.57
E OF 5 YEAR BOND 92.24 57.87
2.16
2.10
2.80
1.65
2.23
3.31
PRICE OF 5.5 YEAR BOND 98.38 53.68
49.65
1.96
2.62
1.55
2.08
3.10
PRICE OF 6 YEAR BOND 99.14
46.08
2.43
1.44
1.94
2.88
PRICE OF 6.5 YEAR BOND 86.94
42.78
1.32
1.77
2.64
PRICE OF 7 YEAR BOND 84.24
39.80
1.69
2.51
PRICE OF 7.5 YEAR BOND 96.09
37.10
2.31
PRICE OF 8 YEAR BOND 72.62
33.84
PRICE OF 8.5 YEAR BOND 82.97
PRICE OF 9 YEAR BOND 104.30
PRICE OF 9.5 YEAR BOND
PRICE OF 10 YEAR BOND
11.50
12.50
5.75
6.25
9.50
10.00
5.53
6.01
5.30
5.76
5.04
5.48
4.80
5.22
4.56
4.96
4.32
4.69
4.07
4.42
3.81
4.14
3.57
3.88
3.36
3.66
3.16
3.44
2.93
3.18
2.74
2.98
2.54
2.77
2.33
2.53
2.22
2.41
2.04
2.22
1.83
1.99
30.91
1.83
95.06
28.44
OF 10 YEAR BOND 100.00
Period
Forward rate
Disc factor
Coupan
PV
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
0.0801
0.0830
0.0893
0.0925
0.0947
0.0979
0.1013
0.1059
0.1085
0.1102
0.1117
0.1158
0.1174
0.1199
0.1240
0.1228
0.1255
0.1315
0.1338
0.1362
1.0400
1.0415
1.0447
1.0462
1.0473
1.0489
1.0506
1.0530
1.0542
1.0551
1.0559
1.0579
1.0587
1.0600
1.0620
1.0614
1.0627
1.0658
1.0669
1.0681
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
105
4.8075
4.6095
4.3859
4.1731
3.9676
3.7539
3.5382
3.3088
3.1080
2.9243
2.7494
2.5441
2.3813
2.2128
2.0275
1.9274
1.7774
1.5889
1.4613
28.1068
Price
85.3537
Instrument
Excel key
Treasury bills
Actual/365
7.35
0.09428
182
100
Price
95.51
Auction day(91)
Auction day(182)
Every Wednesday
he implicit yield in
he issue price (which is the cut-off price in the
d, for the number of days to maturity, to equal
Treasury bill at issue is Rs.98.20, the yield on the same would be
Auction day(364)
Payment day
Following Friday
Attached instrument
Trading platform
STRIPS