Step 1

Step2
Step 3
Step 4
Step 5
Note : Always the dates using Date function
EXAMPLE - ACCURED INTEREST & DIRTY PRICE
PAR BOND (redeemed at
YIELD
COUPON
COUPON FREQUENCY
MATURITY DATE
LAST COUPON
SETTLEMENT DATE
NEXT COUPON DATE
MATURITY DATE

CALCULATE THE DIRTY PRICE, CLEAN PRICE AND ACCRUED INT

PRICE OF THE BOND (CLEAN PRICE)
PRICE USING PRICE FUN
ACCRUED INTEREST
DIRTY PRICE
Bonds globally most of them the coupons are paid semi-annually
Price is mostly is given % of face value
Coupon is given % of face value or Coupon rate
Tenor or Maturity mostly given as Maturity Date
Coupon Dates for semi annual - dates of coupon

Assume Face Value 100

Maturity Date 1/15/2028

Settlement Date 3/15/2015
Last Coupon Date 1/15/2015
Next Coupon Date 7/15/2015

Clean Price 83.625

Coupon Rate 5.80%
Halfy Year Coupon Rate 2.90%
Halfy Year Coupon Amount 2.90

Ref Period (days between coupon dates) 181

No of days between Last Coupon to
Settlement date 59
Accrued Int 0.95
Dirty Price (Clean Price + Accrued Int) 84.57
Cash Settlement Price
Calculate the Coupon Amount (Semi Annual)
Calcualte the no of days between Coupon payment dates
 Calculate the nof days between settlement date to the previ
Calculate the Accurued int = No of days between settlement to the pr
Dirty Price = Accured Int + Clean Price or Price calculated
dates using Date function
RED INTEREST & DIRTY PRICE
100
4%
8% semi annual
2semi annual
1/1/2010
1/1/2008 1-Jan-08
5/16/2008
7/1/2008 7/1/2008
1/1/2010

IRTY PRICE, CLEAN PRICE AND ACCRUED INTEREST BASED ON THE ABOVE DA
ND (CLEAN PRICE)
106.225686935001 106.225686935001
2.98901098901099
109.214697924012INVOICE PRICE
mi-annually

Use Date function

Date of Settling the transaction while buyin the bond in the secondary
Referene Period
181

(i) You can calculate bond price or the market given price
Semi Annual

INVOICE PRICE

Coupon Rate * Face value /2

=date difference between coupon datees
 =date difference between date and the previous coupon date
ment to the prev coupon date / No of days between coupon dates * semi an
 136 ###
182

THE ABOVE DATA?

n the secondary market
on date
dates * semi annual coupon amt
 Illustration of calculation of AI , Cash Price or Dirty Pr

A Bond with the following features

Face Value 1000

Coupon Rate 8%
Coupon Amount 40
Tenor 5
Coupon dates 01 Jan & 01 July
Issue Date 1/1/2019

Settlement date 9/3/2020

given Current Market Price 920

Question
Cash Price or the settlement pric?

Step 1
No of days in between the Coupon Dates
Prev Coupon Dates 7/1/2020
Next Coupon Date 1/1/2021
No of days in between coupon 184

Step 2
No of days in between Settlement date and the Prev
 Date of Settlement 9/3/2020
Pre Coupon Date 7/1/2020

64
Step 3

Accured Int =(No of days in betw

Calcuate AI 13.91

Step 4 Cash Price or Dirty Price

Settlement Price to be by the bond buyer to the bond
Market price 920
Accured int. 13.91
settlement Price 933.91

Note : Settlement price is > Market Price

 Price or Dirty Price

atures

Semi Annual
Every Six months
Years
an & 01 July

enter date thro date

ate and the Prev Coupon date

 64

days

o of days in between settlement date & prev. coupon date) * coupon amt / T

uyer to the bond seller

e) * coupon amt / Total of days between coupon dates
 Illustration of calculation of AI , Cash Price or Dirty Pr

A Bond with the following features

Face Value 1000

Coupon Rate 7%
Coupon Amount 35
Tenor 5
Coupon dates 01 March & 01 Sep

Settlement date 9/3/2020

given Current Market Price 950

Question
Cash Price or the settlement pric?

Step 1
No of days in between the Coupon Dates
Prev Coupon Dates 9/1/2020
Next Coupon Date 3/1/2021
No of days in between coupon 181

Step 2
No of days in between Settlement date and the Prev
 Date of Settlement
Pre Coupon Date

Step 3

Accured Int =(No of days in betw

Calcuate AI

Step 4 Cash Price or Dirty Price

Settlement Price to be by the bond buyer to the bond
Market price 950
Accured int. 0.387
settlement Price 950.39

Note : Settlement price is > Market Price

 Price or Dirty Price

atures

Semi Annual
Every Six months
Years
March & 01 Sep

enter date thro date

ate and the Prev Coupon date

 9/3/2020
9/1/2020
2

o of days in between settlement date & prev. coupon date) * coupon amt / T

uyer to the bond seller

* coupon amt / Total of days between coupon dates
Oracle 5.75% of 15 April 2018
Issue Date 4/9/2008
First Int Date 10/15/2008
Settlement Date 6/16/2015
Prev Coupon Date 4/15/2015
Next Coupon Date 10/15/2015
Coupon Rate 5.75%
Par 1000
Frequency 2
Basis 0
Calc Method TRUE

Accrued Int 9.74 =ACCRINT(B5,B5,B4,B7,B8,B9,B10,B11)

YearFrac 9.74 =YEARFRAC(B5,B4,B10)*B7*B8
Days360 9.74 =DAYS360(B5,B4,FALSE())/360*B7*B8

Using Days function 9.74 =DAYS(B4,B5)/DAYS(B6,B5)*(B8*B7/B9) Using Days functoin

Check 9.74305555555556
Using Days functoin
 Description
7.26%GS2029
Day count Use :
Compute the below for the settlement date of
23rd Sep 2019
(i)
Price

(ii) If he sells 1,000,000 units of the above security on 25th Sep 2

(i) Settlement Date

Maturity Date
Coupon Rate
Coupoon Freq
Yield
Price
Value

(ii) Date of settlement

Coupon dates
14th Jan
14th July
Previous Coupon date
Next Coupon date
Broken Period days
No of days between coupon payments
Clean Price on 25th Sep 2020
Coupon Amount
Accrued Interes
Total Price to be received for selling the security
1,000,000 UNITS PRICE HE WILL RECEIVE
 Maturity date Number of units YTM % p.a.
14th Jan 2029 5,200,000 6.79%
30/360

ity on 25th Sep 2020, calculate the total settlement amount he will receive

9/23/2019
1/14/2029 3401
7.26%
2BY DEFAULTY FOR ALL GOVT SECURITIES, FREQUEN
6.79%
103.18976157038
536,586,760

9/25/2020

7/14/2020
1/14/2021
73days between Prev coupon and settlement date
 184
102.93140657901
3.63SEMI ANNUAL COUPON
1.4401630434783
104.37156962249DIRTY PRICE
104,371,569.62
he will receive

ITIES, FREQUENCY WILL BE SEMI ANNUAL

lement date
Let us take an example of a company ABC Ltd which has raised fund in the form of 1,000 zero cou
periodic contribution if the annualized rate of interest is 5% and the contribution will be done ha

Particulars Value
No. of zero coupon bonds 1,000
Par value of each bond $1,000
Sinking Fund Required (A) $1,000,000
No. of years (n) 10
No. of payments per year (m) 2
Annualized rate of interest (r) 5%

Periodic contribution (P) $39,147.13

Using PMT function

₹39.1471
₹39.147 ₹39,147.13
in the form of 1,000 zero coupon bonds worth $1,000 each. The company wants to set up a sinking fund fo
contribution will be done half-yearly.
e company wants to set up a sinking fund for repayment of the bonds which will be after 10 years. Determ
bonds which will be after 10 years. Determine the amount of the
Let us take an example of a sinking fund with a mo
The fund will be required to retire a newly taken debt (zero-c
Do the calculation of the amount of the sinking fund if the an

Periodic contribution (P)

No. of payments per year (m)
No. of years (n)
Annualized rate of interest (r)
Sinking Fund (A)

PERIODIC CONTRIBUTION
NO OF PAYMENTS PER YEAR
NO OF YEARS
ANNUALIZED RATE OF INT
₹104,655.05
nking fund with a monthly periodic contribution of $1,500.
newly taken debt (zero-coupon bonds) raised for the ongoing expansion pro
the sinking fund if the annualized rate of interest is 6% and the debt will be r

$ 1,500 ANNUITY
12
5
6%
$ 104,655.05 ?

1500
12
5
6%
USING FV FUNCTION ₹104,655.05
$1,500.
expansion project.
debt will be repaid in 5 years.
Calculate the needed amount that must be invested every year
by the end of 10 years. The rate of interest is 10%, compounde

Tenor 10 Years
Savings Yearly
Rate of int 10% Annual
Required Amount 300,000

₹18,823.62 ANNUITY

Tenor 10 Years
Savings MONTHLY
Rate of int 10% Annual
Required Amount 300,000

ANNUITY
invested every year so that the total amount sums up to Rs. 3,00,000
is 10%, compounded annually.

120

0.00833333

₹1,464.52
00,000
What is an Amortized Bond?
An amortized bond is a bond with the principal amount – othe
The bond’s principal is divided up according to the security’s

Face value (Par Value) 500,000

Coupon Rate 6%
Coupon Frequency 2
Term 10
Market Rate (YTM) 9%
Price using PV 402,440.48
Coupon Payment 15,000.00
Discount (97,559.52)

Beginning Interest
Period Balance Payment
0
1 402,440.48 18,109.82
2 405,550.30 18,249.76
3 408,800.06 18,396.00
4 412,196.06 18,548.82
5 415,744.89 18,708.52
 6 419,453.41 18,875.40
7 423,328.81 19,049.80
8 427,378.61 19,232.04
9 431,610.64 19,422.48
10 436,033.12 19,621.49
11 440,654.61 19,829.46
12 445,484.07 20,046.78
13 450,530.85 20,273.89
14 455,804.74 20,511.21
15 461,315.96 20,759.22
16 467,075.17 21,018.38
17 473,093.56 21,289.21
18 479,382.77 21,572.22
19 485,954.99 21,867.97
20 492,822.97 22,177.03
ipal amount – otherwise known as face value –regularly paid down over the l
g to the security’s amortization schedule and paid off incrementally (often in

Years

Ending
Balance
Coupon (Carry value
Payment Amortization of bond)
402,440.48
15000 3109.821 405,550.30
### 3249.763 408,800.06
### 3396.003 412,196.06
### 3548.823 415,744.89
### 3708.520 419,453.41
 ### 3875.403 423,328.81
### 4049.796 427,378.61
### 4232.037 431,610.64
### 4422.479 436,033.12
### 4621.491 440,654.61
15000 4829.458 445,484.07
### 5046.783 450,530.85
### 5273.888 455,804.74
### 5511.213 461,315.96
### 5759.218 467,075.17
### 6018.383 473,093.56
### 6289.210 479,382.77
### 6572.225 485,954.99
### 6867.975 492,822.97
### 7177.033 500,000.00
paid down over the life of the bond.
rementally (often in one-month increments).
Prepare an amortization table for the below:

Face value (Par Value) 500,000.00

Coupon Rate 6%
Coupon Frequency 2
Term 10
Market Rate (YTM) 8%
Price using PV 432,048.37
Coupon Payment 15,000.00
Premium / Discount (67,951.63)

Straightline Amortization of Bond

Beginning Interest
Period Balance Payment
0
1 432,048.37 11,602.42
2 435,445.95 11,602.42
3 438,843.53 11,602.42
4 442,241.11 11,602.42
5 445,638.69 11,602.42
6 449,036.28 11,602.42
7 452,433.86 11,602.42
8 455,831.44 11,602.42
 9 459,229.02 11,602.42
10 462,626.60 11,602.42
11 466,024.18 11,602.42
12 469,421.77 11,602.42
13 472,819.35 11,602.42
14 476,216.93 11,602.42
15 479,614.51 11,602.42
16 483,012.09 11,602.42
17 486,409.67 11,602.42
18 489,807.26 11,602.42
19 493,204.84 11,602.42
20 496,602.42 11,602.42
Years

Ending
Balance
Coupon (Carry value
Payment Amortization of bond)
432,048.37
15,000.00 3397.582 435,445.95
15,000.00 3397.582 438,843.53
15,000.00 3397.582 442,241.11
15,000.00 3397.582 445,638.69
15,000.00 3397.582 449,036.28
15,000.00 3397.582 452,433.86
15,000.00 3397.582 455,831.44
15,000.00 3397.582 459,229.02
15,000.00 3397.582 462,626.60
15,000.00 3397.582 466,024.18
15,000.00 3397.582 469,421.77
15,000.00 3397.582 472,819.35
15,000.00 3397.582 476,216.93
15,000.00 3397.582 479,614.51
15,000.00 3397.582 483,012.09
15,000.00 3397.582 486,409.67
15,000.00 3397.582 489,807.26
15,000.00 3397.582 493,204.84
15,000.00 3397.582 496,602.42
15,000.00 3397.582 500,000.00
DETAILS OF RISKY BOND
FV=RV 1000
COUPON RATE 12%
MATURITY TERM 4

RISK FREE RATES TREASURY SPOT RATE

1 5.0%
2 6.0%
3 6.5%
4 7.0%
TREASURY
RATES RISK
YEAR FREE CFS
1 5.00% 120
2 6.00% 120
3 6.50% 120
4 7.00% 1120
PRICE AS PER TREASURY RATES

PRIC OF THE RISKY BOND AS PER MARKET

WHY ARE WE BUYING A RISKY BOND?

Market Yield Risk Free Rate (Treasury Rate) + Riks Free Pr
ANNUAL
YEARS

ASSUME
Z SPRED 6.00%

Z SPREAD +
PV CFS YEAR T R CFS
114.29 1 11.0% 120
106.8 2 12.0% 120
99.342 3 12.5% 120
854.44 4 13.0% 1120
1174.9

975
Yield is combination of Risk Frree rate + Risk Premium
Rate) + Riks Free Premium
PV CFS
108.11
95.665
84.282
686.94
975
Fave value 1000Coupon Annual 3.40%
Term CFs Spot rate PV of CFS
0 -990 -990
1 34 2.14% 3.65% 32.801
2 1034 2.42% 3.93% 957.2
990
Z Spread 2%
Valuation of floating rate note

A $100,000 floating rate note is based on 180

basis points. On a reset date with 5 years rem
(annualized) and the discount margin (based o
What is the market value of the floating rate n

Face value of the note 100,000

180 day LIBOR Reference Rate
Margin 120
Margin 1.20%
Maturity Remaining 5
LIBOR 180 days 3%
Discount margin (required rate) 4.50%

Annualized Int rate 4.200%

Next Annual Coupon 2100
Required Return from the marke 2.25%
For remaining period
no of coupons remaining 10
Coupon amount 2100
Market Value of the note ₹98,670.07
Recall that the coupon rate on a floating-rate
margin based on the credit risk of the bond re
instrument. The coupon rate for the next perio
reset period, and the payment at the end of th
say that interest is paid in arrears
 is based on 180-day LIBOR (the reference rate) with a q
with 5 years remaining to maturity, 180-day LIBOR is quo
t margin (based on the issuer’s current credit rating) is 4
he floating rate note?

basis points

years
annualized
Yield

3%+1.2%
=4.2%/2* face value
4.5%/2 Yield For Semi annual Yield

₹98,670.07
n a floating-rate note is the reference rate plus or minus
sk of the bond relative to the credit risk of the reference
for the next period is set using the current reference rate
t at the end of the period is based on this rate. For this r
rears
e) with a quoted margin of 120
IBOR is quoted as 3.0%
rating) is 4.5% (annualized).
s or minus a
reference rate
erence rate for the
. For this reason, we