t+1 t+2 t+2 YTM

PV coupon coupon Principal

1051.80 100.00 100.00 1000.00 0.0713

1026.93 100.00 100.00 1000.00 0.0848

1000.00 100.00 100.00 1000.00 0.1000

As you can see the Yield to Maturity on this bond is 10%.

Note that when the Bond is priced at its face value (Rs 1000), the YTM
is equal to the coupon rate , i.e., 10%
Suppose an instant after you bought the bond, the market interest rate
rises to 11.75%.
For the Yield to Maturity on this bond to be now 11.75% ,
the price of this bond must fall to Rs 970.33
Hence, this bond will now sell at the price of Rs 970.33, if you want to sell it.
Note that yield is nothing but the IRR (Internal Rate of Return).

970.33 100.00 100.00 1000.00 0.1175

As you can see the yield on this bond is 11.75%.

937.11 100.00 100.00 1000.00 0.1381

 t+1 t+2 t+3 t+3 YTM
PV coupon coupon coupon Principal

1075.14 100.00 100.00 100.00 1000.00 0.0713

1038.84 100.00 100.00 100.00 1000.00 0.0848

1000.00 100.00 100.00 100.00 1000.00 0.1000

As you can see the Yield to Maturity on this bond is 10%.

Note that when the Bond is priced at its face value (Rs 1000), the YTM
is equal to the coupon rate , i.e., 10%
Suppose an instant after you bought the bond, the market interest rate
rises to 11.75%.
For the Yield to Maturity on this bond to be now 11.75% ,
the price of this bond must fall to Rs 957.79
Hence, this bond will now sell at the price of Rs 957.79, if you want to sell it.
Note that yield is nothing but the IRR (Internal Rate of Return).

957.79 100.00 100.00 100.00 1000.00 0.1175

As you can see the yield on this bond is 11.75%.

911.26 100.00 100.00 100.00 1000.00 0.1381

22/11/17
 t t+1 t+2
coupon coupon
PV + Principal IRR

1051.80 -1051.80 100.00 1100.00 7.13%

1026.93 -1026.93 100.00 1100.00 8.48%

1000.00 -1000.00 100.00 1100.00 10.00%

970.33 -970.33 100.00 1100.00 11.75%

937.11 -937.11 100.00 1100.00 13.81%

t+2 t+1 t
coupon coupon
Interest rate + Principal PV

7.31% 1100.00 100.00 1048.43

8.48% 1100.00 100.00 1026.93

10.00% 1100.00 100.00 1000.00

11.75% 1100.00 100.00 970.33

13.81% 1100.00 100.00 937.11

 8%
3/5/2018
11/22/2027

7.99%
 Table 3.4 : Calculating Duration on a Rs 1000, 10-year , 10% Coupon Rate Bond,
when its interest rate is 10%

Cash PV weights (% weighted

Payments (Present of total maturuty
in Rs Value) PV)

(as in Zero- of cash i.e., [PV/ ( 1 x 4) /

Coupon payments Rs 1000] in
Bonds) % 100
(i=10%)
Year

1 100.00 90.91 9.09 0.0909

2 100.00 82.64 8.26 0.1653
3 100.00 75.13 7.51 0.2254
4 100.00 68.30 6.83 0.2732
5 100.00 62.09 6.21 0.3105
6 100.00 56.45 5.64 0.3387
7 100.00 51.32 5.13 0.3592
8 100.00 46.65 4.67 0.3732
9 100.00 42.41 4.24 0.3817
10 100.00 38.55 3.86 0.3855
10 1000.00 385.54 38.55 3.8554

1000.00 100.00 6.7590

Table 3.4 : Calculating Duration on a Rs 1000, 10-year , 10% Coupon Rate Bond,
when its interest rate is 20%

Cash PV weights (% weighted

Payments (Present of total maturuty
in Rs Value) PV)

(as in Zero- of cash i.e., [PV/ ( 1 x 4) /

Coupon payments Rs 580.75]
Bonds) in % 100
(i=20%)
Year

1 100.00 83.33 14.35 0.1435

2 100.00 69.44 11.96 0.2392
3 100.00 57.87 9.96 0.2989
4 100.00 48.23 8.30 0.3322
5 100.00 40.19 6.92 0.3460
6 100.00 33.49 5.77 0.3460
7 100.00 27.91 4.81 0.3364
 8 100.00 23.26 4.00 0.3204
9 100.00 19.38 3.34 0.3003
10 100.00 16.15 2.78 0.2781
10 1000.00 161.51 27.81 2.7810

580.75 100.00 5.7219

Table 3.4 : Calculating Duration on a Rs 1000, zero-coupon Bond

when its interest rate is 10%

Cash PV weights (% weighted

Payments (Present of total maturuty
in Rs Value) PV)

(as in Zero- of cash i.e., [PV/ ( 1 x 4) /

Coupon payments Rs 1000] in
Bonds) % 100
(i=10%)
Year

1 0.00 0.00 0.00 0.0000

2 0.00 0.00 0.00 0.0000
3 0.00 0.00 0.00 0.0000
4 0.00 0.00 0.00 0.0000
5 0.00 0.00 0.00 0.0000
6 0.00 0.00 0.00 0.0000
7 0.00 0.00 0.00 0.0000
8 0.00 0.00 0.00 0.0000
9 0.00 0.00 0.00 0.0000
10 1593.75 614.46 61.45 6.1446
10 1000.00 385.54 38.55 3.8554

1000.00 100.00 10.0000

Table 3.4 : Calculating Duration on a Rs 1000, 11-year , 10% Coupon Rate Bond,
when its interest rate is 10%

Cash PV weights (% weighted

Payments (Present of total maturuty
in Rs Value) PV)

(as in Zero- of cash i.e., [PV/ ( 1 x 4) /

Coupon payments Rs 1000] in
Bonds) % 100
(i=10%)
Year

1 100.00 90.91 9.09 0.0909

2 100.00 82.64 8.26 0.1653
3 100.00 75.13 7.51 0.2254
4 100.00 68.30 6.83 0.2732
5 100.00 62.09 6.21 0.3105
6 100.00 56.45 5.64 0.3387
7 100.00 51.32 5.13 0.3592
8 100.00 46.65 4.67 0.3732
9 100.00 42.41 4.24 0.3817
10 100.00 38.55 3.86 0.3855
11 100.00 35.05 3.50 0.3855
11 1000.00 350.49 35.05 3.8554

1000.00 100.00 7.1446

Table 3.4 : Calculating Duration on a Rs 1000, 10-year , 20% Coupon Rate Bond,
when its interest rate is 10%

Cash PV weights (% weighted

Payments (Present of total maturuty
in Rs Value) PV)
i.e., [PV/
(as in Zero- of cash ( 1 x 4) /
Rs
Coupon payments 1614.76]
Bonds) 100
(i=10%) in %
Year

1 200.00 181.82 11.26 0.1126

2 200.00 165.29 10.24 0.2048
3 200.00 150.26 9.31 0.2792
4 200.00 136.60 8.46 0.3384
5 200.00 124.18 7.69 0.3846
6 200.00 112.89 6.99 0.4196
7 200.00 102.63 6.36 0.4450
 8 200.00 93.30 5.78 0.4623
9 200.00 84.82 5.25 0.4728
10 200.00 77.11 4.78 0.4776
10 1000.00 385.54 23.88 2.3881

1614.46 100.00 5.9851

 Ref. Table 3.2, pg. 53

Years to Maturity when Bond is initially purchased is 2

t+2 t+2 t+1 t

Principal coupon coupon
Interest rate PV

10.00% 1000 100.00 100.00 1000.00

20.00% 1000 100.00 916.67

Years to Maturity when Bond is initially purchased is 5

t+5 t+5 t+4 t+3 t+2 t+1

Principal coupon coupon coupon coupon coupon
Interest rate

10.00% 1000.00 100.00 100.00 100.00 100.00 100.00

20.00% 1000.00 100.00 100.00 100.00 100.00

 Year t

Year t+1

PV

1000.00 Year t

741.13 Year t+1

107.51 10.00 10.00 10.00 100.00 0.0713

103.88 10.00 10.00 10.00 100.00 0.0848

100.00 10.00 10.00 10.00 100.00 0.1000

95.78 10.00 10.00 10.00 100.00 0.1175

91.13 10.00 10.00 10.00 100.00 0.1381

DURATION

6.76 7.14

5.72 5.99
0.1381
 Table 3.1 Table 3.2

Years to
Maturity
Rs. 1,200.37 30 1,000.00

Rs. 1,099.82 20 1,000.00

Rs. 1,000.00 10 1,000.00

Rs. 900.10 5 1,000.00

Rs. 799.78 2 1,000.00

1 1,000.00

Q.no. 2 Q.no. 3

Years to Yield to
Maturity Maturity
5,579,058.25 3 5.00

500000.0 3 7.00

6,079,058.25 6 7.00

9 5.00

9 9.00

Q.no. 5 Q.no. 6

15625=1250 / i (50/0.025)=

i= 0.08 (50/0.05)=

Rs. 12,272.68
 Q.no. 8 Q.no. 9

i = 2%+6% 0.090

1080.00

1113.00 33.00

Q.no. 11 Q.no. 12

2.83 Rs. 973.76 ∆P = -DUR*[∆i / (1+i)]*P

∆P =

P=

Q.no. 13 Q.no. 14

12.5 = [(100/140)*10+(40/140)*D] Duration of the first loan is 3 year

D= 18.75 Duration of the second loan is

Duration of the portfolio is equal

Duration of the portfolio is

Q.no. 15

733.69 1 160.00 142.86 142.86

2 170.00 135.52 271.05
733.74 3 180.00 128.12 384.36
4 230.00 146.17 584.68

552.67
 502.53 Q.no. 1

515.65 PV = FV / (1+i) ^ n

596.90 PV = 747.26

741.13

916.67

1,000.00

Q.no. 4

Current
Price
1,054.46 t -1150.00 t -1111.00
t+1 100.00 t+1 100.00
1,000.00 t+2 100.00 t+2 100.00
t+3 100.00 t+3 100.00
1,000.00 t+4 100.00 t+4 100.00
t+5 100.00 t+5 100.00
1,142.16 t+6 100.00 t+6 100.00
t+7 100.00 t+7 100.00
880.10 t+8 100.00 t+8 100.00
t+8 1000.00 t+8 1000.00

6.87% 7.44%

Q.no. 7

2000.00 0.0266x100000 2660.00

1000.00 2660/0.09= 29555.56

 Q.no. 10

[80+P(t+1)-980.30]/980.30 = 0.09

P(t+1)= 988.53

8.50% 983.62

8.35%
Yield would have to drop to 8.35% for the price to be 988.53

= -DUR*[∆i / (1+i)]*P P= 980.23

6.44

980.20 P= 980.23 0.03

uration of the first loan is 3 years because it is a zero-coupon loan.

uration of the second loan is 2.76 ∆P = -DUR*[∆i / (1+i)]*P

uration of the portfolio is equal to (3/7)*3+(4/7)*2.76 ∆P = 926851.85

uration of the portfolio is 2.86

0.26
0.49
0.70
1.06

2.50
 Q.no. 1 of Chapter 4

0.10 6.60% 774.41 77.44 12.8478

0.20 6.75% 770.07 154.01 9.7757
0.40 7.00% 762.90 305.16 0.0130
0.20 7.20% 757.22 151.44 6.8626
0.10 7.45% 750.20 75.02 16.5903

763.08 46.09

6.7889

Q.no. 4 of Chapter 5

Corporate Municipal
Bond Bond

1,018.25 1,061.50

After-Tax
Coupon 78.00 85.00
Payment

t -1018.25 -1061.50
t+1 78.00 85.00
t+2 78.00 85.00
t+3 78.00 85.00
t+4 78.00 85.00
t+5 1078.00 1085.00

7.35% 7.00%