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presentation

Presentation Topic:

Bond valuation

What is Bond?

A bond is a long-term debt instrument by a corporation or government.

Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance for variety of projects and activities.

Different types of Bonds:

Perpetual Bond

Coupon Bond

Zero-coupon Bond

Semiannual Coupon Bond

Perpetual Bond:A perpetual bond is a bond that never matures. It has an infinite time.

Formula: V=I/Kd

Here, I= Coupon rate Kd= Discount rate/ Rate of return.

Coupon Bond:

A non-zero coupon-paying bond is a coupon paying bond with a finite time.

Formula: V=I(PVIFAKd,n)+MV(PVIFKd,n)Here, I= Coupon bond kd= Discount rate/ rate of return MV= Maturity Valuation n= Time

Zero-Coupon Bond:A zero-coupon bond is a bond that pays no interest but sells at a deep discount from its face value.It provides compensation to investors in the form of price appreciation.

Formula: V=MV(PVIFKd,n)Here, kd= Discount rate/ rate of return MV= Maturity Valuation n= Time

Semiannual Coupon Bond:A non zero-coupon bond adjusted for semi-annual compounding.Adjustments needed:1) Divide Kd by 22) Multiply n by 23) Divide I by 2

Formula: V=I/2(PVIFAKd/2,n2)+MV(PVIFKd/2,n2)

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