BOND VALUATION

Presented by Juliana Soraisham and K. Mitindra Singh

Types of Bonds
• Public sector undertaking Bonds
•
•
Corporate Bonds
Financial institutions and banks
About Bonds
• Emerging market Bonds A debt instrument that provides a steady
income stream to the investor in the form of
• Tax saving Bonds coupon payments

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Comparison
A short comparison between Bonds and Debentures

BONDS DEBENTURES
Debentures
• Typically a loan secured by physical asset •• Typically
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principal
• The issuing body may mainly be Financial • Nunc tempus, risus sodales hendrerit, arcu dolor
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Institutions, Gov. agencies etc •at porta
The issuing
mauris.body are mostly private

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Bond Valuation
Meaning of Bond valuation

Bond Valuation is a way to

determine the theoretical fair value
of a particular bond.

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Bond valuation
terms ••• •Deep
•Redemption
• Callable
Call
Zero
Maturity
Intrinsic
Coupon
Yield
Date
Discount
Coupon
toand
&
Knowing the following terms are required for ••• Coupon
Market
Current
Issue
Face
YieldValue
Price
toPrice
Rate
Yield
call
bond valuation
Puttable
Bonds(DDB)
Bonds
Payments
Call
Maturity
value
Price
Date
Price
(ZCB)
Bond

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 Techniques of
• •Arbitrage-Free
Stochastic Calculus
pricing
Bond Valuation
• Present
RelativeValue
Price Approach There are 4 main types of valuation techniques
Approach

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 Problem : A Bond is Issued with the face value of Rs
10,000 at 10% coupon rate for 5 years. The required rate of
return is 8%. What is the value of the Bond ?

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Table
Calculating according to the Present Value Approach.
year Devaluation Coupon Payments Present value of cash Present Value TOTAL
factor flow

1000
1st year (1.08)1 1000/(1.08)1 925.93

2nd year (1.08)2 1000 1000/(1.08)2 857.34

10798.56
3rd year (1.08)3 1000 1000/(1.08)3 793.83

4th year (1.08)4 1000 1000/(1.08)4 795.03

1000 (1000+10000)/
5th year (1.08)5 (1.08)5 7486.46

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 ThankYou
Juliana soraisham & Mitindra konji
+917005706671
Mitindra.konjengbam@gmail.com

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r e sValuation
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