Jaipuria Institute of Management, Jaipur

Course: Fixed Income Securities

Term: 5th Term (Batch: 2018-20)

Report : Bond Valuation

Submitted By: Submitted To :

Astha Sundriyal – PGFC1810 Dr. Babita Jha
Chirag Jain – PGFB1813
Richa Mansukhani – PGFB1840
Tushar Tahiliani-PGFB1857
INTRODUCTION :-
1.Power finance corporation:-
Power Finance Corporation Ltd was incorporated on July 16 1986 as a public limited
company. The GoI established the company as a financial institution in order to finance
facilitate and promote power sector development in India with the President of India holding
100% of the equity share capital. In December 31 1987 they commenced their business
operations.Power Finance Corporation Ltd is a leading power sector public financial
institution and a non-banking financial company providing fund and non-fund based support
for the development of the Indian power sector. The company is engaged in power sector
financing and the integrated development of the power and associated sectors. They provide
large range of Financial Products and Services like Project Term Loan Lease Financing
Direct Discounting of Bills Short Term Loan and Consultancy Services etc for various Power
projects in Generation Transmission and Distribution sector as well as for Renovation &
Modernization of existing power projects.The company's clients include state power utilities
central power sector utilities power departments private power sector utilities (including
independent power producers) joint sector power utilities power equipment manufacturers
and power utilities run by local municipalities. These clients are involved in all aspects of the
generation transmission and distribution and related activities in the power sector in India.

2.The Karnataka bank ltd:-

Karnataka Bank Limited is India's twelfth largest private sector bank. It is an 'A' Class
Scheduled Commercial Bank based in Mangaluru in Karnataka, India. Karnataka Bank
Limited has a network of 846 branches, 1540 ATMs and 330 e-lobbies/mini e-lobbies across
22 states and 2 union territories. It has 8,275 employees and over 10.21 million customers
throughout the country. Its shares are privately owned by over 1,46,000 shareholders. The
tagline of the bank is "Your Family Bank Across India". Karnataka Bank Ltd a premier
private sector bank is a leading 'A' Class Scheduled Commercial Bank in India. The Bank
offers a total value package a one-stop shop for all the banking needs. They provide Working
Capital Finance Term Loans and Infrastructure Finance to help the Business grow. The Bank
operates in four business segments namely treasury corporate and wholesale banking retail
banking and other banking operations. As at 31st March 2018 the Bank has 800 banking
outlets and 2 extension counters spread across 22 States and 2 Union Territories. Apart from
the above the Bank has 12 Regional offices an International Division a Data Centre a
Customer Care Centre 4 Service branches 2 Currency Chests 2 Central Processing Centre's
and 5 Asset Recovery Management branches.

3. Indian railway finance corporation:-

Indian railway finace corporation was founded in the year 1987 and it’s headquarter is in
New Delhi,India Indian Railway Finance Corporation known as IRFC is a finance arm of
the Indian Railway. It raises financial resources for expansion and running through capital
markets and other borrowings. IRFC started borrowing from the market in 1987-88.
4. U.P. Power corporation ltd. :-
The creation of Uttar Pradesh Power Corporation Ltd. (UPPCL) on January 14, 2000 is the
result of power sector reforms and restructuring in UP (India) which is the focal point of the
Power Sector, responsible for planning and managing the sector through its transmission,
distribution and supply of electricity.

UPPCL will be professionally managed utility supplying reliable and cost efficient electricity
to every citizen of the state through highly motivated employees and state of art technologies,
providing an economic return to our owners and maintaining leadership in the country.

5. The South Indian Bank ltd:-

South Indian Bank is a private sector bank that was founded in the year 1929 and is head-
quartered in Thrissur City, Kerala, India. The bank offers banking and financial services to
the customers. The banking products mainly include loans, savings, investment vehicles,
insurance etc. The South Indian Bank Limited (the Bank) provides retail and corporate
banking, Para banking activities, such as debit card, third-party product distribution, in
addition to Treasury and Foreign Exchange Business. The Bank's segments include Treasury,
Corporate/Wholesale Banking, Retail banking and Other Banking Operations. The treasury
services segment consists of interest earnings on investments portfolio of the Bank, gains or
losses on investment operations and earnings from foreign exchange business. The
Corporate/Wholesale Banking segment provides loans to corporate segment. The Retail
Banking segment provides loans to non-corporate customers. The Other Banking Operations
segment includes income from para banking activities, such as debit cards, third-party
product distribution and associated costs. The Bank has a network of approximately 830
branches, approximately 40 extension counters and approximately 1,290 automated teller
machines (ATMs) in India.
INTRINSIC VALUE :-
Intrinsic value – Intrinsic value of a bond help investor to take decision for investment.
1. Power Finance Corporation :-

For Power finance corporation bond intrinsic value of bond is 120.10 which is more
than Current market price 96.10. It shows that the bond is available in market at lesser
price than intrinsic value. So, it is suggested to investors that they can buy this bond.
As the thumb rule is
CMP < Intrinsic value = BUY
96.10 < 120.10

2. The Karnataka Bank Ltd :-

For The Karnataka Bank Limited, intrinsic value of bond is 113.148 which is more
than Current market price 109.82. It shows that the bond is available in market at
lesser price than intrinsic value. So, it is suggested to investors that they can buy this
bond. As the thumb rule is
CMP < Intrinsic value = BUY
109.82 < 113.148

3. Indian Railway Finance Corporation Ltd. :-

For Indian railway finance corporation ltd. bond intrinsic value of bond is 110.11
which is more than Current market price 97.6.10. It shows that the bond is available in
market at lesser price than intrinsic value. So, it is suggested to investors that they can
buy this bond. As the thumb rule is
CMP < Intrinsic value = BUY
97.6 < 110.11

4. UP Power corporation:-

For UP Power corporation bond intrinsic value of bond is 96.30 which is less than
Current market price 99.89. It shows that the bond is available in market at higher
price than intrinsic value. So, it is suggested to investors that do not buy this bond. As
the thumb rule is
CMP < Intrinsic value = BUY
99.89 >96.30

5. South Indian Bank Ltd:-

For south Indian bank ltd intrinsic value of bond is 105.087 which is a smaller
amount than Current market value 108.928. It shows that the bond is out there in
market at more price than intrinsic value. So, it's suggested to investors that they don’t
buy this bond. because the thumb rule is
CMP > Intrinsic value = not buy 108.087>105.087
YIELD :-
Yield – Yield is the expected rate of return by investor while investing in a particular bond
and debenture.
And in Yield to maturity short method we use formula =

Coupon + (Redemption value – Salvage value)/N

-------------------------------------------------------------
(Redemption value + Salvage value)/2

1. Power Finance Corporation :-

Here in Power finance corporation Current yield is 8.8033 and Yield to maturity is
9.0260. If we calculate Yield current yield which represents Investor expectation in
term of return while computing interest amount with a current market price.

2. The Karnataka Bank Ltd :-

Here in The Karnataka Bank Limited Current yield is 10.927and Yield to maturity is
10.5023. If we calculate Yield current yield which represents Investor expectation in
term of return while computing interest amount with a current market price.

3. Indian Railway Finance Corporation Ltd. :-

Here in Indian railway finance corporation ltd. Current yield is 8.84221 and Yield to
maturity is 8.97773. If we calculate Yield current yield which represents Investor
expectation in term of return while computing interest amount with a current market
price.

4. UP Power corporation:-

Here in UP Power Corporation Current yield is 10.15 and Yield to maturity is 10.16.
If we calculate Yield current yield which represents Investor expectation in term of
return while computing interest amount with a current market price.

5. South Indian Bank Ltd:-

Here in South Indian bank ltd. Current yield is 10.786 and Yield to maturity is 10.393.
If we calculate Yield current yield which represents Investor expectation in term of
return while computing interest amount with a current market price.
DURATION :-
Duration means the time period with in which the invested amount can be recovered from the
investment in the bonds caring a particular rate of interest.

1. Power Finance Corporation :-

Here Macaulay duration is 5.67 Years.

2. The Karnataka Bank Ltd :-

Here Macaulay duration is 6.55 Years.

3. Indian Railway Finance Corporation Ltd. :-

Here Macaulay duration is 6.44 Years.

4. UP Power corporation:-

Macaulay duration is 6.60 Years.

5. South Indian Bank Ltd:-

Macaulay duration is 6.07 Years.

MODIFIED DURATION:-
1. Power Finance Corporation :-
modified duration is 5.20 Years.

2. The Karnataka Bank Ltd :-

modified duration is 5.86 Years.

 3. Indian Railway Finance Corporation Ltd. :-

modified duration is 5.76 Years.

4. UP Power corporation:-

modified duration is 5.99 Years.

5. South Indian Bank Ltd:-

modified duration is 5.43 Years.

CONVEXITY :-
Convexity – convexity measures the price sensitivity of a bond with the change in the yield.
It Measures the convexity of a particular bond. In terms of impact of mainly market interest
rate in relation to the price of a security.

1. Power Finance Corporation :-

So the convexity of the bond is 57.37

2. The Karnataka Bank Ltd :-

So the convexity of the bond is 50.44

3. Indian Railway Finance Corporation Ltd. :-

So the convexity of the bond is 57.94

4. UP Power corporation:-

So the convexity of the bond is 50.74

5. South Indian Bank Ltd:-

So the convexity of the bond is 48.53