bBond is a debt instrument. When issued by govt or public sector industry it is called bond. When issued by pvt industry it is called corporate bond. Corporate bond is also called a instrument to raise capital side by side with equities. But thr is diff dat bond has maturity but equity doesn’t. the issuing authority is called borrower and buyer is called lender. Security is also called instrument . every bond offers rate of interst. Like other loans borrower has to pay int and at maturity u hv to pay the principla.
Principal v , Face value or redemption value is 100 in india whras 1000$ in usa. Excel by default accepts 100 not 1000. Assume the a bond issued by govt has face v 1000 us $ . coupon rate of interst 6 % . in the market alternative invt opp offers 5.6 %. This alt YTM( yield to maturity.
04-02-2011
QUESTION 1:
Redemption value of a bond is 1000.
Coupon Rate 8%
Yield 12%
In Poland , the bond has maturity 10 yrs.
SOLUTION:
SYNTAX : =PRICE(settlement, maturity,rate,yld,redemption,frequency)
| A | B |
1 | DoS | 15-05-2011 |
2 | DoM | 15-05-2021 |
3 | r | 8% |
4 | Yield | 12% |
5 | Red. | 1000 |
6 | Frequency | 1 |
PRICE = 361.175
NOTE:INDIA AND USA ARE THE ONLY COUNTRIES HAVING FREQUENCY 2.
QUESTION :2
Redemption value of a bond is 100.
Coupon Rate 8%
Yield 12%
In INDIA, the bond has maturity 10 yrs.
| A | B |
1 | DoS | 5-02-2010 |
2 | DoM | 5-02-2020 |
3 | r | 8% |
4 | Yield | 12% |
5 | Red. (OR PRINCIPLE OF POWER VALUE) | 100 |
6 | Frequency | 2 |
| Price | 77.060158 |
PRICE IS 77.O60 AND PRINCIPLE IS 100 THEREFORE WE CONCLUDE THAT HE IS SELLING AT DISCOUNT.