LIVE PROJECT

TO CALCULATE THE PRESENT VALUE AND YTM OF THE BOND

Submitted by:-Mayuri GaribaMudit AgrawalNikhil BakreNikita AgrawalPooja Zaveri

 Submitted to:- MRS. Prashant Jain Faculty(F.M)

21/10/2008 1PRESENT VALUE AND YTM

 Objective

 Introduction

 Formula

 Data

Calculation

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To calculate Present Value(PO) and Yield to Maturity(YTM) of a Bond

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BONDS:- In finance, a bond is a debt security, in

which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date.

Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company whereas bond-holders are lenders to the issuing company.

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Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.

An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity).

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FACE VALUE:-

The face value of bonds usually represents the principal or redemption value.

  Interest payments are expressed as a

percentage of face value.

Before maturity, the actual value of a bond may be greater or less than face value, depending on the interest rate payable and the perceived risk of default.

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  As bonds approach maturity, actual value

approaches face value.  Its also called as Par value .

A BOND is generally issued at the par value of Rs 100 and sometimes Rs 1000.

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Coupon rate or Interest:-

The coupon or coupon rate of a bond is the amount of interest paid per year expressed as a percentage of the face value of the bond.

Maturity:- 

The bond's maturity date refers to a future date on which the issuer pays the principal to the investor.

Bond maturities usually range from one day up to 30 years or even more.

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Redemption value:- 

The value which the bond holder gets on maturity is called Redemption value.

A bond may be redeemed at par, at premium (more than par) or at discount (less than par).

 

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When a bond sells at a discount, YTM > current yield > coupon yield.

When a bond sells at a premium, coupon yield > current yield > YTM.

When a bond sells at par, YTM = current yield = coupon yield amt

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Present Value:-

PO = I (PVIFAkd,n) + F (PVIFkd,n)

= I {(1+k)n – 1/k(1+k)n} + F {1/(1+k)n}

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 Yield to Maturity:- YTM = {I+ (F-P)/n} / (F+P)/2

Where:- I = Annual Interest kd = k = Required rate of return n = Maturity period of bond Po = Present Value of bond F = Par value repayable at the

maturity P = Current market price of the bond

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Bond Holder

Company name

Mkt price(P)

Annual Interest (I)

ROR(kd = k )

Maturity period(n)

Face value or Par value (F)

Navin Shah

Bank of Baroda

101.00 8.95% 10% 10yrs 1000

Hariom Gupta

BSES Ltd. 96.00 5.95% 7% 15yrs 1000

Ankit Agrawal

Canara bank 126.00 9.00% 11% 15yrs 1000

Narendra Jain

CITICORP FINANCE LIMITED

195.00 10.25% 8% 3yrs 1000

Sumeet Natwani

EXIM BANK 86.00 9.04% 10% 5yrs 1000

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Present Value:-PO = I (PVIFAkd,n) + F (PVIFkd,n)

= I {(1+k)n – 1/k(1+k)n} + F {1/(1+k)n}

= 89.5{(1+0.10)10 - 1/0.10(1+0.10)10} +1000{(1/(1+0.10)10} = 3737. 50

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 Yield to Maturity:- YTM = {I+ (F-P)/n} / (F+P)/2 = {89.5 + (1000-101)/10} / (1000+101)/2

= 179.4/550.5

= 0.3221/10/2008 PRESENT VALUE AND YTM 16

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