Basic

Time (Semi-annual) Cash Flows PVIF PRESENT VALUE

1 50 0.96 48.08 Example:
2 50 0.92 46.23
3 50 0.89 44.45 Let us consider a bond with face value of Rs.1,00
4 50 0.85 42.74 annually. At present, five years are remaining to
Assume that current rate of interest is 8% p.a.
5 50 0.82 41.10
6 50 0.79 39.52 1. Determine the price of the bond.
7 50 0.76 38.00
8 50 0.73 36.53 2. Would you buy this bond if it is currently traded
9 50 0.70 35.13
10 1050 0.68 709.34
1,081.11 1081.11

Page 1
 Basic

ond with face value of Rs.1,000 and a coupon rate of 10%p.a., paid semi
, five years are remaining to maturity and the bond is to be redeemed at par.
t rate of interest is 8% p.a.

ce of the bond.

is bond if it is currently traded at Rs. 1040?

Page 2
Use this sheet for bonds upto 25 years of maturity BOND PRICE
VALUE OF A BOND
This Model Calculates The Value / Price of a Bond
Assumes Semiannual Interest Payments
25 Year Maximum (Maturity); Years Entered As .5, 1.0, 1.5, 2.0, etc.

DISCOUNTED DISCOUNTED SUM OF CASH FLOWS FOR

INTEREST INTEREST PRINCIPAL PRINCIPAL DISCOUNTED CALCULATION OF
PERIOD CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS IRR

INPUTS 0 ($1,000.00) ($1,000.00) ($1,000.00) ($1,081.11)

FACE/PAR AMOUNT OF BOND
(e.g., $1000) $1,000.00 1 $50.00 $48.08 $0.00 $0.00 $48.08 $50.00
COUPON INTEREST RATE PER
YEAR (e.g., .08, .09, .10) 10.00% 2 $50.00 $46.23 $0.00 $0.00 $46.23 $50.00
YEARS TO MATURITY (e.g., 2.0,
1.5, 6.0, 25.0) 5.0 3 $50.00 $44.45 $0.00 $0.00 $44.45 $50.00
Rate /
Period 4 $50.00 $42.74 $0.00 $0.00 $42.74 $50.00
REQUIRED RATE OF RETURN /
DISCOUNT RATE (e.g., .10, .08) 8.00% 4.00% 5 $50.00 $41.10 $0.00 $0.00 $41.10 $50.00
6 $50.00 $39.52 $0.00 $0.00 $39.52 $50.00
7 $50.00 $38.00 $0.00 $0.00 $38.00 $50.00
8 $50.00 $36.53 $0.00 $0.00 $36.53 $50.00
9 $50.00 $35.13 $0.00 $0.00 $35.13 $50.00

OUTPUT 10 $50.00 $33.78 $1,000.00 $675.56 $709.34 $1,050.00

PRICE / VALUE OF BOND $1,081.11 11 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
12 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
13 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
14 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
15 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
DATA TABLE ROR CHANGES $1,081.11 16 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
16% 17 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
15% 18 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
14% 19 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
13% 20 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
12% 21 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
11% 22 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
10% 23 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
9% 24 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
8% 25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
7% 26 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
6% 27 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
5% 28 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
4% 29 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
3% 30 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
2% 31 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
1% 32 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
33 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
34 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
35 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
36 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
37 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
38 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
39 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
40 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
41 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
42 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
43 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
44 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
45 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
46 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
47 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
48 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
49 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
NPV = IRR =
$1,081.11 8.00%

BOND PRICE AS DISCOUNT RATE CHANGES

$250.00
BOND PRICE

$-
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

DISCOUNT RATE
A bond that matures in 5 years has a par value of $1,000, an annual coupon payment of $70; its
market interest rate is 7%. What is its price?

Coupon rate 7%
Payment $70.00
Par value $1,000.00
Maturity 5
Going rate = rd = YTM 7%

Value of bond: $1,000.00

Eff ect of cou
1,600.00
Required Maturity
Rate, rd Value (Yrs) 1,400.00
$1,000.00 5
0% 1,350.00 1,200.00
4% 1,133.55
1,000.00
5% 1,086.59 value of a bond depends on the
6% 1,042.12 interest rate. As interest rate 800.00
7% 1,000.00 changes, the value of a bond
8% 960.07 also varies.
600.00
9% 922.21
10% 886.28 400.00
15% 731.83
20% 611.22 200.00

0.00
0% 5% 10%
 Price curve flattens at higher
interest rates. Reflects that
progressive increases in interest
rate results in progressively
smaller reductions in the bond
price

Eff ect of coupon on value

There is an inverse relationship

between the value of a bond
and the interest rate. The value
will decline when interest rate
rises and vice-versa.

5% 10% 15% 20% 25%

 YTM(2)

Settlement 1/1/2006 This is the date of purchase. If not certain fill in any date

Maturity 12/30/2013 The formula in this case is=B3+365*8, as the maturity period is 8 years

Rate 9% The annual coupon rate

Yield 13.2% The required return per annum

Redemption 100 Fill in the redemption value as a percentage of the par value

Frequency 1 This represents the number of times interest is paid in a year

Basis 3 3 represents the day count convention :actual no.of days/365, in interest calculation

Price 80.00 To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7)

Bond price is obtained per Rs.100 of the face value of the bond. Here, the redemption value being

Rs. 1000, the price would be Rs.79.99 x 1000/100 = Rs.799.9 or Rs.800

Given the bond price you can use the spreadshet to calculate the yield to maturity. In the above

worksheet, if you type the Price as 80 in cell B8 and wish to calculate the yield to maturity in cell B4

(of course all other data remaining unchanged), type =YIELD(B1,B2,B3,B8,B5,B6,B7) in cell B4 and

press enter any you will get the value as 13.2% in that cell. The cell references in the formula for the

yield respectively stand for Settlement, Maturity,Rate, Price(per Rs.100).Redemption value(per Rs.100),

Frequency and Basis.

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YTM(2)

Page 7
YTM(2)

Page 8
Settlement 1/1/2006 This is the date of purchase. If not certain fill in any date

Maturity 12/30/2013 The formula in this case is=B3+365*8, as the maturity period is 8 years

Rate 9% The annual coupon rate

Yield 13.2% The required return per annum

Redemption 100 Fill in the redemption value as a percentage of the par value

Frequency 1 This represents the number of times interest is paid in a year

Basis 3 3 represents the day count convention :actual no.of days/365, in interest calculation

Price 80.00 To get the result in B8, use the function =PRICE(B1,B2,B3,B4,B5,B6,B7)

Bond price is obtained per Rs.100 of the face value of the bond. Here, the redemption value being

Rs. 1000, the price would be Rs.79.99 x 1000/100 = Rs.799.9 or Rs.800

Given the bond price you can use the spreadshet to calculate the yield to maturity. In the above

worksheet, if you type the Price as 80 in cell B8 and wish to calculate the yield to maturity in cell B4

(of course all other data remaining unchanged), type =YIELD(B1,B2,B3,B8,B5,B6,B7) in cell B4 and

press enter any you will get the value as 13.2% in that cell. The cell references in the formula for the

yield respectively stand for Settlement, Maturity,Rate, Price(per Rs.100).Redemption value(per Rs.100),

Frequency and Basis.

 BOND YIELD TO MATURITY

YIELD TO MATURITY
This Model Calculates The Yield To Maturity For A Bond
Semiannual Interest Payments
25 Year Maximum (Maturity)
CASH FLOWS
DISCOUNTED DISCOUNTED SUM OF FOR
INTEREST INTEREST PRINCIPAL PRINCIPAL DISCOUNTED CALCULATION
PERIOD CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS OF IRR

INPUTS 0 ($1,220.00) ($1,220.00) ($1,220.00) ($1,220.00)

PAR / FACE VALUE OF BOND (e.g.,
$1,000) $1,000.00 1 $63.13 $59.38 $0.00 $0.00 $59.38 $63.13
COUPON INTEREST RATE PER
YEAR (e.g., .08, .10, .125) 12.63% 2 $63.13 $55.85 $0.00 $0.00 $55.85 $63.13
YEARS TO MATURITY (e.g., 2.0,
1.5, 10.0, 21.5) 25.0 3 $63.13 $52.53 $0.00 $0.00 $52.53 $63.13
Rate /
Period 4 $63.13 $49.42 $0.00 $0.00 $49.42 $63.13
CURRENT PRICE OF BOND (e.g.,
$1052.50) $ 1,220.00 6.31% 5 $63.13 $46.48 $0.00 $0.00 $46.48 $63.13
6 $63.13 $43.72 $0.00 $0.00 $43.72 $63.13
7 $63.13 $41.13 $0.00 $0.00 $41.13 $63.13
8 $63.13 $38.68 $0.00 $0.00 $38.68 $63.13
9 $63.13 $36.39 $0.00 $0.00 $36.39 $63.13

OUTPUT 10 $63.13 $34.23 $0.00 $0.00 $34.23 $63.13

YIELD TO MATURITY 10.18% 11 $63.13 $32.19 $0.00 $0.00 $32.19 $63.13
CURRENT YIELD 10.35% 12 $63.13 $30.28 $0.00 $0.00 $30.28 $63.13
CAPITAL GAINS YIELD -0.17% 13 $63.13 $28.48 $0.00 $0.00 $28.48 $63.13
14 $63.13 $26.79 $0.00 $0.00 $26.79 $63.13
EFFECTIVE ANNUAL RATE 10.43% 15 $63.13 $25.20 $0.00 $0.00 $25.20 $63.13
16 $63.13 $23.71 $0.00 $0.00 $23.71 $63.13
17 $63.13 $22.30 $0.00 $0.00 $22.30 $63.13
18 $63.13 $20.97 $0.00 $0.00 $20.97 $63.13
19 $63.13 $19.73 $0.00 $0.00 $19.73 $63.13
20 $63.13 $18.56 $0.00 $0.00 $18.56 $63.13
21 $63.13 $17.46 $0.00 $0.00 $17.46 $63.13
22 $63.13 $16.42 $0.00 $0.00 $16.42 $63.13
23 $63.13 $15.44 $0.00 $0.00 $15.44 $63.13
24 $63.13 $14.53 $0.00 $0.00 $14.53 $63.13
25 $63.13 $13.66 $0.00 $0.00 $13.66 $63.13
26 $63.13 $12.85 $0.00 $0.00 $12.85 $63.13
27 $63.13 $12.09 $0.00 $0.00 $12.09 $63.13
28 $63.13 $11.37 $0.00 $0.00 $11.37 $63.13
29 $63.13 $10.70 $0.00 $0.00 $10.70 $63.13
30 $63.13 $10.06 $0.00 $0.00 $10.06 $63.13
31 $63.13 $9.46 $0.00 $0.00 $9.46 $63.13
32 $63.13 $8.90 $0.00 $0.00 $8.90 $63.13
33 $63.13 $8.37 $0.00 $0.00 $8.37 $63.13
34 $63.13 $7.88 $0.00 $0.00 $7.88 $63.13
35 $63.13 $7.41 $0.00 $0.00 $7.41 $63.13
36 $63.13 $6.97 $0.00 $0.00 $6.97 $63.13
37 $63.13 $6.56 $0.00 $0.00 $6.56 $63.13
38 $63.13 $6.17 $0.00 $0.00 $6.17 $63.13
39 $63.13 $5.80 $0.00 $0.00 $5.80 $63.13
40 $63.13 $5.46 $0.00 $0.00 $5.46 $63.13
41 $63.13 $5.13 $0.00 $0.00 $5.13 $63.13
42 $63.13 $4.83 $0.00 $0.00 $4.83 $63.13
43 $63.13 $4.54 $0.00 $0.00 $4.54 $63.13
44 $63.13 $4.27 $0.00 $0.00 $4.27 $63.13
45 $63.13 $4.02 $0.00 $0.00 $4.02 $63.13
46 $63.13 $3.78 $0.00 $0.00 $3.78 $63.13
47 $63.13 $3.55 $0.00 $0.00 $3.55 $63.13
48 $63.13 $3.34 $0.00 $0.00 $3.34 $63.13
49 $63.13 $3.14 $0.00 $0.00 $3.14 $63.13
50 $63.13 $2.96 $1,000.00 $46.86 $49.82 $1,063.13
NPV = IRR =
$1,000.00 10.18%
 YIELD TO CALL

YIELD TO CALL
This Model Calculates Yield To First Call Date For A Callable Bond
Semiannual Interest Payments
25 Year Maximum (Maturity)
CASH FLOWS CASH FLOWS
DISCOUNTED DISCOUNTED SUM OF FOR DISCOUNTED DISCOUNTED SUM OF FOR
INTEREST INTEREST PRINCIPAL PRINCIPAL DISCOUNTED CALCULATIO INTEREST INTEREST PRINCIPAL PRINCIPAL DISCOUNTED CALCULATION
PERIOD CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS N OF IRR CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS CASH FLOWS OF IRR

INPUTS 0 ($865.49) ($865.49) ($865.49) ($865.49) ($865.49) ($865.49) ($865.49) ($865.49)

PAR / FACE VALUE OF
BOND (e.g., $1000) $1,000.00 1 $41.25 $39.62 $0.00 $0.00 $39.62 $41.25 $41.25 $39.62 $0.00 $0.00 $39.62 $41.25

COUPON INTEREST
RATE PER YEAR (e.g., .
06, .105) 8.25% 2 $41.25 $38.05 $0.00 $0.00 $38.05 $41.25 $41.25 $38.05 $0.00 $0.00 $38.05 $41.25
YEARS TO MATURITY
(e.g., 2.0, 1.5) 15.0 3 $41.25 $36.54 $0.00 $0.00 $36.54 $41.25 $41.25 $36.54 $0.00 $0.00 $36.54 $41.25
Rate /
Period 4 $41.25 $35.09 $0.00 $0.00 $35.09 $41.25 $41.25 $35.09 $0.00 $0.00 $35.09 $41.25
CURRENT PRICE OF
BOND (e.g., $1050.25) $ 865.49 4.13% 5 $41.25 $33.70 $0.00 $0.00 $33.70 $41.25 $41.25 $33.70 $0.00 $0.00 $33.70 $41.25
CALL PRICE OF BOND
(e.g., $1050) $ 1,050.00 6 $41.25 $32.37 $0.00 $0.00 $32.37 $41.25 $41.25 $32.37 $0.00 $0.00 $32.37 $41.25
YEARS TO FIRST CALL
(e.g., 2.0, 2.5) 5.0 7 $41.25 $31.08 $0.00 $0.00 $31.08 $41.25 $41.25 $31.08 $0.00 $0.00 $31.08 $41.25
8 $41.25 $29.85 $0.00 $0.00 $29.85 $41.25 $41.25 $29.85 $0.00 $0.00 $29.85 $41.25
9 $41.25 $28.67 $0.00 $0.00 $28.67 $41.25 $41.25 $28.67 $0.00 $0.00 $28.67 $41.25

OUTPUT 10 $41.25 $27.53 $0.00 $0.00 $27.53 $41.25 $41.25 $27.53 $1,050.00 $700.87 $728.41 $1,091.25
YIELD TO CALL 12.71% 11 $41.25 $26.44 $0.00 $0.00 $26.44 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
**CURRENT YIELD 9.53% 12 $41.25 $25.40 $0.00 $0.00 $25.40 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
**CAPITAL GAINS YIELD 3.18% 13 $41.25 $24.39 $0.00 $0.00 $24.39 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
YIELD TO MATURITY 10.00% 14 $41.25 $23.42 $0.00 $0.00 $23.42 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
**CURRENT YIELD 9.53% 15 $41.25 $22.50 $0.00 $0.00 $22.50 $41.25 $0.00 $22.50 $0.00 $0.00 $22.50 $0.00
**CAPITAL GAINS YIELD 0.47% 16 $41.25 $21.60 $0.00 $0.00 $21.60 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
17 $41.25 $20.75 $0.00 $0.00 $20.75 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
EFFECTIVE ANNUAL
RATE 13.10% 18 $41.25 $19.93 $0.00 $0.00 $19.93 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
19 $41.25 $19.14 $0.00 $0.00 $19.14 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
20 $41.25 $18.38 $0.00 $0.00 $18.38 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
21 $41.25 $17.65 $0.00 $0.00 $17.65 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
22 $41.25 $16.95 $0.00 $0.00 $16.95 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
23 $41.25 $16.28 $0.00 $0.00 $16.28 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
24 $41.25 $15.64 $0.00 $0.00 $15.64 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
25 $41.25 $15.02 $0.00 $0.00 $15.02 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
26 $41.25 $14.42 $0.00 $0.00 $14.42 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
27 $41.25 $13.85 $0.00 $0.00 $13.85 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
28 $41.25 $13.30 $0.00 $0.00 $13.30 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
29 $41.25 $12.77 $0.00 $0.00 $12.77 $41.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
30 $41.25 $12.27 $1,000.00 $297.41 $309.67 $1,041.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
31 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
32 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
33 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
34 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
35 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
36 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
37 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
38 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
39 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
40 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
41 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
42 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
43 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
44 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
45 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
46 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
47 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
48 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
49 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
NPV = IRR = NPV = IRR =
$1,000.00 10.00% $1,055.87 12.71%