Zero-coupon bond valuation

Example 1
Face value $100.00
Bond's price $98.00
Maturity in years 3

YTM 0.68%

Example 2
Face value $100.00
YTM 2%
Maturity in years 5

Bond's price $90.57

Zero-coupon bond valuation

Example 1
Face value $100.00
Bond's price $98.00
Maturity in years 3

YTM 0.68%

Example 2
Face value $100.00
YTM 2%
Maturity in years 5

Bond's price $90.57

Coupon bond valuation

Coupon rate 5%
Coupon frequency 2
Face value 1000
Maturity in years 5

YTM Bond's price

5% $1,000.00 at par
8% $878.34 premium
3% $1,092.22 discount
Coupon bond valuation

Coupon rate 5%
Coupon frequency 2
Face value 1000
Maturity in years 5

YTM Bond's price

5% $1,000.00
8% $878.34
3% $1,092.22

If the YTM is = the coupon rate, the bond's price is = to the face value
If the YTM is higher than the coupon rate, the bond's price is less than the face value
If the YTM is lower than the coupon rate, the bond's price is higher than the face valu
an the face value
han the face value
Inputs
Face value $1,000.00
Coupon rate 7%
Maturity 5

YTM 5%
Price $1,086.59 PREMIUM - coupon payments higher than th

1 2 3 4 5
Coupon rate 7% 7% 7% 7% 7%
Discount rate YTM) 5% 5% 5% 5% 5%

8%
7%
6%
5%
4% Coupon rate
3% Discount rate YTM)
2%
1%
0%
1 2 3 4 5
ayments higher than the discount market rate

Coupon rate
Discount rate YTM)
 Price calculations (various bonds)
Inputs Bond maturity 1 2
Coupon rate 5% Face value $1,000 $1,000
YTM 9% Price $963 $930
Face value $1,000
Face value as % of Face value 0.00% 0.00%
Bond Price as % of Face value -3.67% -7.04%

0.00%
1 2 3 4 5 6
-5.00%

-10.00%

-15.00%

-20.00%

-25.00%

-30.00%

-35.00%

-40.00%
 3 4 5 6 7 8 9 10 11
$1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
$899 $870 $844 $821 $799 $779 $760 $743 $728

0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

-10.13% -12.96% -15.56% -17.94% -20.13% -22.14% -23.98% -25.67% -27.22%

5 6 7 8 9 10 11 12 13 14

Face
%o
valu

Bon
%o
valu
 12 13 14
$1,000 $1,000 $1,000
$714 $701 $689

0.00% 0.00% 0.00%

-28.64% -29.95% -31.14%

13 14

Face value as
% of Face
value

Bond Price as
% of Face
value
Calculating duration - annual compounding

Inputs
Maturity in years 4
Compounding Annual
Current date 1/1/2016
Maturity date 1/1/2020
Coupon 6%
YTM 5%
Face value $1,000.00

Duration calculation
Bond's price today $1,035.46

Year (T) Cash flows PV of the CF

1 $60.00 $57.14
2 $60.00 $54.42
3 $60.00 $51.83
4 $1,060.00 $872.06
$1,035.46

With excel

Check duration
Rate change
New bond price PV function
% change

Duration prediction -Duration * annual rate change / (1+YTM annual

 Weight of the PV of
Weight of the PV of the CF in the price
the CF in the price * T
0.0552 0.0552
0.0526 0.1051
0.0501 0.1502
0.8422 3.3688
3.6793

* annual rate change / (1+YTM annual)

Calculating duration - annual compounding

Inputs
Maturity in years 4
Compounding Annual
Current date 1/1/2016
Maturity date 1/1/2020
Coupon 6%
YTM 5%
Face value $1,000.00

Duration calculation
Bond's price today $1,035.46

Year (T) Cash flows PV of the CF

1 $60.00 $57.14
2 $60.00 $54.42
3 $60.00 $51.83
4 $1,060.00 $872.06
$1,035.46

With excel 3.6793

Check duration
Rate change 0.50%
New bond price $1,017.53 PV function
% change -1.73%

Duration prediction -1.75% -Duration * annual rate change / (1+YTM annual

 Weight of the PV of
Weight of the PV of the CF in the price
the CF in the price * T
0.0552 0.0552
0.0526 0.1051
0.0501 0.1502
0.8422 3.3688
3.6793

* annual rate change / (1+YTM annual)

Bond valuation with the yield curve

Face value $1,000.00

Maturity 3
Coupon rate 4.00%
1-y rate 3.50%
2-y rate 4.00%
3-y rate 4.50%

Year Cash flows PV of the CFs

1 $40.00
2 $40.00
3 $1,040.00
Total

YTM
Bond valuation with the yield curve

Face value $1,000.00

Maturity 3
Coupon rate 4.00%
1-y rate 3.50%
2-y rate 4.00%
3-y rate 4.50%

Year Cash flows PV of the CFs

1 $40.00 $38.65
2 $40.00 $36.98
3 $1,040.00 $911.35
Total $986.98

YTM 4.47%

The YTM is a rate between the rates from the yield curve
The YTM is typically very close to the rate for the principal repayment because this is the most s
The lower the coupon, the closer the YTM to the rate of the principal CF
nt because this is the most significant CF