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Bond Valuation Problems

The document discusses various questions related to bond valuation. Q1 asks for the fair value of a 15-year bond with a 10% annual coupon and $1,000 par value if the required return is 9% or changes to 5% or 15%. Q2 asks for the price of an 8-year bond with a $1,000 par value, $70 annual coupon, and 9% market interest rate. Q3 asks for the price of a 12-year bond with a $1,000 par value, 10% annual coupon, and 8% market interest rate. The remaining questions ask for bond prices or yields given various bond characteristics like maturity, coupon rate, market interest

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64 views19 pages

Bond Valuation Problems

The document discusses various questions related to bond valuation. Q1 asks for the fair value of a 15-year bond with a 10% annual coupon and $1,000 par value if the required return is 9% or changes to 5% or 15%. Q2 asks for the price of an 8-year bond with a $1,000 par value, $70 annual coupon, and 9% market interest rate. Q3 asks for the price of a 12-year bond with a $1,000 par value, 10% annual coupon, and 8% market interest rate. The remaining questions ask for bond prices or yields given various bond characteristics like maturity, coupon rate, market interest

Uploaded by

ANUP MUNDE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Q.

A bond has a 15-year maturity, a 10% annual coupon, and a $1,000 par value. The required rate of return on the
liquidity, and other rates in the economy. What is a fair value for the bond, i.e., its market price?Suppose the requi
rose to 15%. How would those changes affect the value of the bond?

Q. 2

A bond that matures in 8 years has a par value of $1,000, an annual coupon payment of $70; its market inter
Q. 3
A bond that matures in 12 years has a par value of $1,000 and an annual coupon of 10%; the market interest rat
What is its price?

Q. 4
Hartwell Corporation bonds have a 20-year maturity, an 8% annual coupon rate paid semi annually, and a face valu
interest rate (rd) is 7%. What is the bond's price?

A firm has 7.5% coupon bonds on the market that have 10 years left to maturity. The bonds make annual payment
of Rs 1000. If the YTM on these bonds is 8.75%, what is the current bond price?
A firm issued 11 year bonds a year ago at a coupon rate of 6.9%. The bond makes semi annual payments, and the Y
a face value of Rs 1000 is 7.4%. What is the current price of the bond.
required rate of return on the bond is 9%, given its risk, maturity,
rket price?Suppose the required rate rd (a) fell from 9% to 5% or (b)
ct the value of the bond?

ment of $70; its market interest rate is 9%. What is its price?
10%; the market interest rate is 8%.

emi annually, and a face value of $1,000. The going nominal annual
e bond's price?

bonds make annual payments and have a face value


he current bond price?
i annual payments, and the YTM on these bonds with
price of the bond.
Bonds of XYZ Ltd are selling for Rs. 10,800. The coupon rate is 10%, par value is Rs. 10,000 and years to m
Calculate YTM

Find the current yield and Yield to Maturity of a 10 year, 12 % coupon bond with a par value

A firm has a 9% coupon bonds on the market with nine years left to maturity. The bonds make annual pa
for $934, what is its YTM? Face value 1000
Ngata Corp. issued 12-year bonds 2 year ago at a coupon rate of 8.4 percent. The bonds make semiannua
sell for 105 percent of par value, what is the YTM?
alue is Rs. 10,000 and years to maturity is 10 years. Interest is paid annually.
late YTM

% coupon bond with a par value of Rs 1000 and selling for Rs 950

rity. The bonds make annual payments. If the bond currently sells
? Face value 1000
nt. The bonds make semiannual payments. If these bonds currently
ue, what is the YTM?
Q.1

A Rs 100 perpetual bond is currently selling for Rs. 95. The coupon rate of interest is 13.5% and the appropriate dis
Should it be bought? What is the YTM at current market value?
3.5% and the appropriate discount rate is 15%. What is the value of the bond?
M at current market value?
— TERMSHEET FOR NABARD (BHAVISHYA NIRMAN BOND)
— I.GENERAL INFORMATION
— i. A 10 Year Zero Coupon Bond of National Bank for Agriculture and R
— ii. The bonds will be made available for investment as unsecured bonds.
— iii. The bonds will be listed at BSE.
— II Terms of the Bond
— Issue Price = Rs. 9,250
— Tenure : The Bond will be issued for the tenure of 10 years from the deemed dat
— of allotment.
— Rating: ‘AAA’ and ‘LAAA’ rating from CRISIL and ICRA respectively.
— Redemption Value = Rs. 20,000
— If the required rate of return is 8%, calculate the fair price of this bond and shou
ulture and Rural Development (NABARD) hereinafter referred to as Bhavishya Nirman B

e deemed date

ctively.

nd and should it be bought?


avishya Nirman Bond is being issued by way of private placement as long term investment
g term investment under Sections 2 (47)& 2(48) of Income Tax Act, 1961.
Mr. Khanna is planning to invest sum of his savings into corporate bonds. Recently he has come to know about the p
A detailed advertisement is mentioned here for your reference purpose:
Our Offering: 11.80% Tata Steel unsecured perpetual bonds is being offered at 10.17% yield. Tata Steel issued uns
Credit Rating: Tata Steel Issued 11.80% perpetual bond having CARE Rating of “AA” & BRICWORKS “AA”
Key Features of the bonds: • Coupon of 11.80% semi annually
• Perpetual Bond with call option at the 10th year (18-Mar-2021)
Why considering investment in Tata Steel Perpetual Bond: • Currently available @ 10.17% yield (required rate o

Following the given information in the advertisement, calculate the fair price of the given bond in the following case
(i)                 If bond is called after given period of time
(ii)               If issuer is not going to exercise call option.
y he has come to know about the perpetual bonds issued by various banks and other corporate in India. His financial planner has sent the de

0.17% yield. Tata Steel issued unsecured perpetual bonds in Mar 2011 on private placement, the issue size being Rs.1500 crore.
“AA” & BRICWORKS “AA”

-Mar-2021)
e @ 10.17% yield (required rate of return), the return on the investment is better than the traditional Fixed Deposit currently available in th

e given bond in the following cases:


al planner has sent the detailed term sheet of Tata steel perpetual bond.

s.1500 crore.

t currently available in the market.

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