Bond Valuation Homework

CARLOS PONTON

1) valuate a bond 1000 euros, 5 years maturity and 2,5% coupon rate today, if the discounted rate is 4%

Bo= 25 + 25 + 25 + 25 + 25 + 1000
(1,04) ^1 (1,04) ^2 (1,04) ^3 (1,04) ^4 (1,04) ^5 (1,04) ^5

Bo= 25 + 25 + 25 + 25 + 25 + 1000
1.04 1.0816 1.1249 1.1699 1.2167 1.2167

Bo= 24.038 + 23.1139 + 22.2249 + 21.37 + 20.5481 + 821.9271

Bo= 933.22
2) analyze a bond, $ 100000 par value, 10 years maturity, 2,5% semiannually coupon rate and 4% discounted rate

Bo= 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250
(1,02) ^1 (1,02) ^2 (1,02) ^3 (1,02) ^4 (1,02) ^5 (1,02) ^6 (1,02) ^7 (1,02) ^8 (1,02) ^9

+ 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250 + 1250

(1,02) ^10 (1,02) 11 (1,02) ^12 (1,02) ^13 (1,02) ^14 (1,02) ^15 (1,02) ^16 (1,02) ^17 (1,02) ^18

+ 1250 + 1250 + 100000

(1,02) ^19 (1,02) ^20 (1,02) ^20

Bo= 1225.49 + 1201.4609765 + 1177.903 + 1154.8068 + 1132.164 + 1109.964 + 1088.2 + 1066.863 + 1045.944

+ 1025.43537 + 1005.3287989 + 985.6165 + 966.29066 + 947.3438 + 928.7684 + 910.5573 + 892.7032 + 875.1992

+ 858.03845 + 841.21416639 + 67297.13

Bo= 87736.425
1) calculate the YTM of an european Bond, 100000 €, 1% semiannually coupon, 2 years maturity, that has a current market price of 99%

99000= 500 + 500 + 500 + 500 + 100000

(1,00755) ^1 (1,00755) ^2 (1,00755) ^3 (1,00755) ^4 (1,00755) ^5

99000= 500 + 500 + 500 + 500 + 100000

1.00755 1.0151570025 1.022821 1.0305437 1.030544

99000= 496.253288 + 492.53465106 + 488.8439 + 485.18076 + 97036.15

99000= 98998.9656 1.00755

YTM= 1.51%
2) find the YTM of a Mexican Global Bond, 10000 pesos, 2% quarterlly coupon, 2 years maturity, that has a current market price of 102%

10200= 50 + 50 + 50 + 50 + 50 + 50 + 50 + 50 + 10000
(1,00251) ^1 (1,00251) ^2 (1,00251) ^3 (1,00251) ^4 (1,00251) ^5 (1,00251) ^6 (1,00251) ^7 (1,00251) ^8 (1,00251) ^8

10200= 50 + 50 + 50 + 50 + 50 + 50 + 50 + 50 + 10000
1.00251 1.0050263001 1.007549 1.0100779 1.012613 1.015155 1.017703 1.020257 1.020257

10200= 49.8748142 + 49.749941862 + 49.62538 + 49.501134 + 49.3772 49.25357 49.13025 49.00725 9801.449

10200= 10196.9687 1.00251

YTM= 1.004%
3) Valuate an Ecuadorian Global Bond 2012, $1000 , 6% semiannually coupon, 4 years maturity, that has a 35% current market price

350= 30 + 30 + 30 + 30 + 30 + 30 + 30 + 30 + 1000
(1,199) ^1 (1,199) ^2 (1,199) ^3 (1,199) ^4 (1,199) ^5 (1,199) ^6 (1,199) ^7 (1,199) ^8 (1,199) ^8

350= 30 + 30 + 30 + 30 + 30 + 30 + 30 + 30 + 1000
1.199 1.437601 1.723684 2.0666966 2.477969 2.971085 3.562331 4.271235 4.271235

350= 25.0208507 + 20.868099007 + 17.40459 + 14.515919 + 12.10669 10.09732 8.421452 7.02373 234.1243

350= 349.582968 1.199

YTM= 39.80%
Brazilian Bond

980000= 20000 + 20000 + 20000 + 20000 + 1000000

(1,00755) ^1 (1,00755) ^2 (1,00755) ^3 (1,00755) ^4 (1,00755) ^5

980000= 20000 + 20000 + 20000 + 20000 + 1000000

1.02531 1.0512605961 1.077868 1.1051488 1.105149

980000= 19506.2957 + 19024.778513 + 18555.15 + 18097.11 + 904855.5

980000= 980038.825 1.02531

YTM= 5.062%
Japanese Bond

99000= 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250
(1,00251) ^1 (1,00251) ^2 (1,00251) ^3 (1,00251) ^4 (1,00251) ^5 (1,00251) ^6 (1,00251) ^7 (1,00251) ^8 (1,00251) ^9

+ 6250 + 6250 + 6250 + 100000

(1,00251) ^10 (1,00251) ^11 (1,00251) ^12 (1,00251) ^12

99000= 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250 + 6250
1.0637 1.13145769 1.203532 1.2801965 1.361745 1.448488 1.540757 1.638903 1.743301

+ 6250 + 6250 + 6250 + 100000

1.8543495 1.9724715672 2.098118 2.098118

99000= 5875.71684 + 5523.8477366 + 5193.05 + 4882.063 + 4589.699 + 4314.844 + 4056.448 + 3813.526 + 3585.152

+ 3370.45416 + 3168.6134817 + 2978.86 + 47661.761

99000= 99014.0363
YTM= 25.480% 1.0637

European Bond

Bo= 1000 + 1000 + 1000 + 1000 + 100000

(1,02) ^1 (1,02) ^2 (1,02) ^3 (1,02) ^4 (1,02) ^4

Bo= 1000 + 1000 + 1000 + 1000 + 100000

1.02 1.0404 1.0612 1.0824 1.0824

Bo= 980.392 + 961.169 + 942.323 + 923.845 + 92387.29

Bo= 96195.019
USA Bond

Bo= 500 + 500 + 500 + 500 + 100000

(1,015) ^1 (1,015) ^2 (1,015) ^3 (1,015) ^4 (1,015) ^4

Bo= 500 + 500 + 500 + 500 + 100000

1.015 1.0302 1.0457 1.0614 1.0614

Bo= 492.61 + 485.33 + 478.158 + 471.092 + 94218.42

Bo= 96145.613
 Bond Valuation Homework
CARLOS PONTON

1) Check the previous exercises with excel solver : PV & IRR

2) After 2 years assume central bank decreases interest rates, and there is a recall of of 101% call price. Would you sell it and why?

1) calculate the YTM of an european Bond, 100000 €, 1% semiannually coupon, 2 years maturity, that has a current market price of 99%

par/face value: 100000 call price: 101000

periods 4 periods 4
coupon 500 coupon 500
Present Value 99000 Present Value 99000
YTM 0.755% x 2 = 1.51% YTC 1.003% x 2 = 2.01%

Answer: Yes I'd sell it because YTC is bigger than YTM

2) find the YTM of a Mexican Global Bond, 10000 pesos, 2% quarterlly coupon, 2 years maturity, that has a current market price of 102%

par/face value: 10000 call price: 10100

Periods: 8 periods 8
coupon 50 coupon 50
Present Value 10200 Present Value 10200
YTM 0.247% x 4 = 0.989% YTC 0.369% x 4 = 1.48%

Answer: Yes I'd sell it because YTC is bigger than YTM

3) Valuate an Ecuadorian Global Bond 2012, $1000 , 6% semiannually coupon, 4 years maturity, that has a 35% current market price

par/face value: 1000 call price: 1010

Periods: 8 periods 4
coupon 30 coupon 30
Present Value 350 Present Value 350
YTM 19.878% x 2 = 39.756% YTC 36.442% x 2 = 72.88%

Answer: Yes I'd sell it because YTC is bigger than YTM

Brazilian bond

par/face value: 1000000 call price: 1010000

Periods: 4 periods 4
coupon 20000 coupon 20000
Present Value 980000 Present Value 980000
YTM 2.532% x 2 = 5.064% YTC 2.775% x 2 = 5.55%

Answer: Yes I'd sell it because YTC is bigger than YTM

Japanese bond

par/face value: 100000 call price: 101000

Periods: 12 periods 8
coupon 6250 coupon 6250
Present Value 99000 Present Value 99000
YTM 6.372% x 4 = 25.487% YTC 6.514% x 4 = 26.05%

Answer: Yes I'd sell it because YTC is bigger than YTM

European Bond

par/face value: 100000 call price: 101000

Periods: 4 periods 4
coupon: 1000 coupon 1000
Discounted rate: 2% Present Value 96192.2713
annuality formula: 96192.2713 YTC 2.248%

Answer: Yes I'd sell it because YTC is bigger than YTM

USA Bond

par/face value: 100000 call price: 101000

Periods: 4 periods 4
coupon: 500 coupon 500
Discounted rate: 1.50% x 2 = 3.00% Present Value 96145.6154
annuality formula: 96145.6154 YTC 1.750% x 2 = 3.50%

Answer: Yes I'd sell it because YTC is bigger than YTM

Problems:

6.3.- Greenman Engineering has some 15-years $1,000 par bonds outstanding, when have coupon interest rate of 9 percent
and pay interest annually. What is the yield to maturity on the bonds if thier current market price is:
a. $1,181.72
b. $795.99
c. Would you be wiling to pay $795.99 if you minimum required rate of return was 11 percent? Why or why not?

a. b.
par/face value: 1000 par/face value: 1000
periods 15 periods 15
coupon 90 coupon 90
Present Value 1181.72 Present Value 795.99
YTM 7.004% YTM 11.994%

c.
yes, because the yield to maturity is higher than required rate of return

6.4.- A $1,000 par value bond has a 12 percent coupon rate, pays interests annually, and has 15 years ramaining until it matures.
a. If Bo = $1,151.72, what is its yield to maturity (YTM)?
b. If the bond can be called in 6 years at $1,030, what is the bond's yield to call (YTC)?

a. b.
par/face value: 1000 call price: 1030
periods 15 periods 6
coupon 120 coupon 120
Present Value 1151.72 Present Value 1151.72
YTM 10.005% YTC 9.015%
6.6.- Kamath Brothers has a $1,000 par, 9 percent coupon rate bond oustanding. The bond has 14 years to maturity.
a. If the current market value of the bond is $1,200, and interest is paid annually, what is the bond's yield to maturity?
b. What if everthing is as in (a), but interest is paid semiannually?

a. b.
par/face value: 1000 par/face value: 1000
periods 14 periods 28
coupon 90 coupon 45
Present Value 1200 Present Value 1200
YTM 6.748% YTM 3.384% x 2 = 6.767%
 Homework
Carlos Ponton.

1.- In the New York Stock exchange there is the following Bonds information

Bond Face Value Maturity Coupon Price YTM YTC

Petrobras 1,000,000.00 5 years 2%quarterly 99% ? ?, 2yrs, 99.5%
Vodafone 10,000.00 10 years 1% quarterly 101% ? ?, 2 yr, 100%
Toyota 100,000.00 4 years 0.5% semi 0.75% ?, 1 yr, 100%

Petrobras
YTM YTC

par/face value: 1000000 call price: 995000

periods 20 periods 8
coupon 20000 coupon 20000
Present Value 990000 Present Valu 990000
YTM 2.062% YTC 2.079%
YTM annual 8.2461% YTC annual 8.3155%

Vodafone
YTM YTC

par/face value: 10000 call price: 10000

periods 40 periods 8
coupon 100 coupon 100
Present Value 10100 Present Valu 10100
YTM 0.970% YTC 0.870%
YTM annual 3.8789% YTC annual 3.4802%

Toyota
YTM YTC

par/face value: 100000 call price: 100000

Periods: 8 periods 2
coupon: 500 coupon 500
Discounted rate 0.75% Present Valu 98065.8467
annuality formul 98065.846688 YTC 1.489%
YTM annual 1.5000% YTC annual 2.9775%
2.- GMC is issuing new Corporate Bonds, 100,000 dollars, 10% coupon rate, 5 years, and the
principal amortization is as follows

Year 1 2 3 4 5
10,000.00 10,000.00 20,000.00 30,000.00 30,000.00

Valuate the Bond if financial markets expects a minimum rate of return of 12%

Year 1 2 3 4 5
10,000.00 10,000.00 20,000.00 30,000.00 30,000.00
coupon 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
total payments 20,000.00 20,000.00 30,000.00 40,000.00 40,000.00
discount factor 1.12 1.2544 1.404928 1.57351936 1.7623417

Manual Calulation:
Bo= 17857.1429 15943.88 21353.41 25420.72 22697.074
Bo= $ 103,272.23

Excel calculation (NPV function):

Bo= $ 103,272.23

3.- Ford Co. Is analyzing to issue a Zero Coupon Corporate Bond, 100,000 dollars, 5 years,
and the financial market is willing to pay no less than 92% current market price. How much
is the profitability of the negotiation.

par/face value: 100000

periods 5
coupon 0
Present Value 92000
YTM 1.682%
 amortization table
principal interest coupon amortization
tasa 0 0 0 0 100000
10% 1 10000 10000 20000 90000
2 10000 9000 19000 80000
3 20000 8000 28000 60000
4 30000 6000 36000 30000
5 30000 3000 33000 0
100000