Fixed Investment Management
Autor: Sara17 • November 22, 2018 • 1,688 Words (7 Pages) • 547 Views
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Now using the inputs above, we perform calculate the price of the bond at various yield rates so as to converge on the last traded price.
GOI Treasury Bond
Cash Flow for different yields
Index
Coupon Amount
8.080%
6.918%
1
8.08
7.476
7.56
2
8.08
6.917
7.07
3
8.08
6.400
6.61
4
8.08
5.921
6.18
5
8.08
5.479
5.78
6
8.08
5.069
5.41
6
100.00
62.738
66.94
Total
100.00
105.55
State Bank of India
The SBI’s bond had a maturity period of 5 years, as was due for 12th September 2022. The bond had coupon rate of 10.1% with a rating of AAA. The payments were to be given out yearly. At the time of comparison, the bond was trading at 101.48%.
We use the above figures to try and find out the expected yield for the bond.
State Bank of India
Cash Flow at varying yields
Year
Coupon Amount
10.100%
9.762%
1
10.10
9.173
9.202
2
10.10
8.332
8.383
3
10.10
7.568
7.638
4
10.10
6.873
6.958
5
10.10
6.243
6.340
6
10.10
5.670
5.776
6
100.00
56.140
57.186
Total
100.00
101.48
DS Kulkarni Developers Limited
DS Kulkarni Developers had their bond priced at a discount. Its last trading price was 73.5% with a coupon rate of 12.75%. It had a rating of BBB+ hence a little riskier than the first two bonds, however, the coupon rate was on a higher side. The bond was to expire on 4th of August 2022. The payments were to be made quarterly which meant there were to be 20 payments made between now and the time the bond expired.
As the bond is trading at a discount, the yield rate must be lower higher than the coupon rate. We plug in the values for the yield going upwards from the coupon rate to try and converge at the trading price. Following this, we obtain that the yield to maturity for this particular bond is 17.605% which apparently is much higher than the other two bonds discussed so far, however, it comes with more risk attached.
The bond prices for the various yield rates are as follows:
DS Kulkarni
Cash Flow at Different Yields
Period
Coupon Amount
12.750%
17.605%
1
12.75
11.308
10.841
2
12.75
10.029
9.218
3
12.75
8.895
7.838
4
12.75
7.889
6.665
5
12.75
6.997
5.667
6
12.75
6.206
4.819
7
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