Finance, Banking & Insurance

Chapter - 6

Presented
Palash Kumar Modak
Lecturer
Rajuk Uttara Model College
 Bond
Bond is the document of long term loan that a
company sells to collect its required fund.

Govt. and Company or Corporations are the

bond issuing authorities in Bangladesh.
Treasury Bond: Long term bond issued by Govt.
is called treasury bond.
Corporate Bond: Long term bond issued by
company or corporation is called corporate
bond.
 Bond
Special types of Bond:
Coupon Bond: The bond that contains specific
interest rate, maturity date and face value is
called coupon bond.
Zero Coupon Bond: The bond on which no
interest rate is paid is called zero coupon
bond.
Perpetual Bond: Perpetual bond is a bond where
does not have any maturity date.
 Formula of Coupon Bond
1. Present Value of Bond Here,
VB = Value of Bond
MV = Maturity value
Kd = Required rate of
retrun
I = Amount of Interest
n = Maturity period

2. If Coupon interest is paid Semi-annually then we are apply this

formula
 Formula
3. Zero Coupon Bond MV = Maturity value
Kd = Required rate or return
n = Maturity period

Note: The Bond on which No Interest is paid.

4. Perpetual Bond
Kd = Required rate of return
I = Amount or Interest

Note: The Bond on which No Maturity Period

 Problem 1: Square Company issued 5 years bond at 1st january
2018, face value of which is Tk 1000.Coupon interest rate is
12%.Interest paid annually and expected rate of return of the
bonds are 14%.Calculate the value of bond of this company?

Here,
VB = Value of Bond
MV = Maturity value
• Kd = Required rate of retrun
• I = Amount of Interest
• n = Maturity period
 Problem- 2
ABC company ltd issued 15 years bond of Tk 2000
face value on 1st January 2019.Its coupon rate is 10%
and interest is paid semi-annually. Expected rate of
return is 12%. Calculate the bond value of this
company?
 Problem- 3
Eco textile ltd has outstanding BDT 2000 par value of
bond, where maturity value of the bond is Tk 2500
with in 11% coupon interest rate. Find out the value
of bond when the required rate of return is 10%.
 Problem- 4
XYZ company issued a bond in 2017 face value of this
bond is Tk 1000. Coupon rate is 9% and required rate
of return of the bond is 12%. Determine the present
value of the bond?
 C.Q-1: Mr Rfique wants to invest in bond market.He is
considering the following two bonds for investment-

Bond Coupon Rate Maturity Period Market Price

P 12% 5 years Tk 1290
Q 11% --- Tk 900

Mention price of both bonds is Tk 1000.Mr Rafique expected rate of return is

10% and he has decided to invest in Q bond.

a. What is Bond?
b. What is zero coupon bond? Explain it.
c. Determine present value of P-Bond?
d. Do you think that Mr. Rafique has taken the right investment decision?
Give your opinion based on intrinsic value of the bond.
 Home Work
C.Q-2: Mr Hasan is a bond investor. He has chosen two bonds for
investment. Particulars of the bonds are given below :-

Bond Coupon Rate Maturity Period Market Price

X 14% 5 years Tk 1250
Y --- 10 years Tk 850
Face value of each bond is Tk 1000. Expected rate of return of Mr. Hasan is
12%.

a. What is tressury bond?

b. Which security is called hybrid security? Explain.
c. Determine present value of X-Bond?
d. Which bond should Mr. Hasan choose for investment? Analyze.