BBA VISION Coaching

Online Class
Bond Valuation
Finance/Security /Investment/Project Mgt
সংজ্ঞাঃ
Bond হচ্ছে একটি দীর্ ঘচ্ছেয়ঞদী ঋনপত্র বঞ ঋচ্ছনর দলিি যঞর েঞধ্যচ্ছে ককঞম্পঞলন একটি লনলদ ঘষ্ট সুচ্ছদর লবলনেচ্ছয় একটি লনলদ ঘষ্ট সেচ্ছয়র
জন্য জনগচ্ছনর কঞছ কেচ্ছক ঋন লনচ্ছয় েঞচ্ছক।

Formula:
1. Coupon Bond: 1st year nu-fin long term
1− 1 1st year 7clg-valuation
𝑛 𝑀𝑉/𝑅𝑉
V0 = Int {
(1 + 𝑘)
}+ [অংচ্ছক coupon rate কেঞটি উচ্ছেখ েঞচ্ছক] 2nd year nu-long term
𝑘 (1 + 𝑘)𝑛 2nd year 7clg Acc+fin
3rd year 7clg fin-capital mkt
2. Zero Coupon Bond:
𝑀𝑉 4th year 7clg acc-secuity
V0 = [অংচ্ছক Zero coupon কেঞটি উচ্ছেখ েঞচ্ছক] 4th year 7clg mgt-F.m
(1 + 𝑘)𝑛
3. Perpetual Bond: 4th year 7clg fin- investment
𝐼𝑛𝑡
V0 = [অংচ্ছক No of years েঞকচ্ছব নঞ]
𝑘

4. Current Yield:
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
CY =
𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒
𝐼𝑛𝑡
[যলদ অংচ্ছক Sales Price কদওয়ঞ নঞ েঞচ্ছক তচ্ছব Bond Value লনন ঘয় করচ্ছত হচ্ছব তখন সূত্র হচ্ছব – CY = ]
𝑉0
Note: Bond এর অংচ্ছক লনচ্ছের ৭ টি Point ‘Given’ লদচ্ছয় লিখচ্ছত হচ্ছব –
1. Face Value(FV)
2. Coupon interest rate
3. Coupon interest payment (Int) =Fv * C.R
4. Maturity period (n)
5. Maturity value (MV)
6. Required rate of return (Discount rate/Cost of capital/ Opportunity cost/Yield to maturity (k)
7. Value of the bond / price of the bond/Current price/Selling price/Market price/Expected or estimated value /
Intrinsic Value (V0)

*** যলদ অংচ্ছক লকছু বিঞ নঞ েঞচ্ছক তচ্ছব Face value = Par Value = Maturity value = Redemption value
*** Interest এর percentage ছঞড়ঞ অংচ্ছক অন্য ককঞন percentage েঞকচ্ছি তঞ Required rate of return অে ঘঞৎ এর K েঞন।
*** যলদ অংচ্ছক semi-annually / Half yearly (m = 2), Quarterly (m = 4), Bi-monthly (m = 6); monthly (m = 12) for weekly (m
= 52), Daily / continuously (m = 360) ইতযঞলদ েঞচ্ছক তচ্ছব সূচ্ছত্রর কযখঞচ্ছন কযখঞচ্ছন ‘I’ এবং ‘k’ আচ্ছছ তঞর লনচ্ছে ‘m’ ভঞগ হচ্ছব এবং
‘n’ এর সঞচ্ছে ‘m’ গুণ হচ্ছব।
 𝐹𝑉−𝑆𝑉
𝐼+
𝑁
# YTM = 𝐹𝑉+𝑆𝑉 × 100
2
𝐶𝑃−𝑆𝑉
𝐼+
𝑁
# YTC = 𝐶𝑃+𝑆𝑉 × 100
2

Problem – 01 Simple redeemable bond value calculation:

Calculate the value of a redeemable bond having face value of Tk. 2500 at 10% coupon rate. Its maturity
is 9 years & required rate of return is 8%.
Solution
Given that,
Face Value = Tk. 2,500
Coupon interest rate = 10%
Coupon interest payment (Int) = Face value × Coupon interest rate
= 2,500 × 10% 0 = Tk. 250
Maturity period (n) = 9 years
Maturity Value (MV) = Tk. 2,500
Required rate of return (k) = 8% or .08
Value of the bond (V0) =?
We know, value of the redeemable bond:
1
1− 𝑛 𝑀𝑉
(1 + 𝑘)
V0 = Int { }+
𝑘 (1 + 𝑘)𝑛
1
1− 2,500
(1 + 0.08)9
= 250 × { 0.08
}+
(1 + 0.08)9
= 250 × 6.24689 + 1250.62
= Tk. 2,812.34
So, the value of the redeemable bond is Tk. 2,812.34.

Problem – 02 Bond value calculation when the bond is redeemed at premium:

Sonic View has Tk. 1,000 par value bonds outstanding at 12% interest. The bonds will mature in 15 years and redeemed
at 10% premium. Compute the current price of the bonds if the yield to maturity is 13%.

Solution
Given that,
Par value or face value = Tk. 1,000
Coupon interest rate = 12%
Coupon interest payment (Int) = Face value × Coupon interest rate
= 1,000 × 12% = Tk. 120
Maturity period (n) = 15years
Redemption Value (RV) = Face value + Premium
= 1,000 + (1,000 × 10%) = Tk. 1,100
Yield to maturity (k) = 13%
Value of the bond (V0) =?
Value of the Sonic View's bond:
1
1− 𝑛 𝑅𝑉
(1 + 𝑘)
V0 =I{ 𝑘
}+
(1 + 𝑘)𝑛
 1
1− 1,100
(1 + 0.13)15
= 120 × { 0.13
}+
(1 + 0.13)15
= 120 × 6.46238 + 175.88
= Tk. 951.37
So, the price of the bond is Tk. 951.37.

Problem – 03 [NU – 2010]

Determine the value of the bond of ABC Company from the information given below:
Coupon Rate 10%
Face Value Tk. 1,000
Discount Rate 15%
Maturity Period 12 year

Solution
Given that
Par value or face value = Tk. 1,000
Coupon interest rate = 10%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 10% = Tk. 100
Maturity period (n) = 12 years
Maturity Value (MV) = Tk. 1,000
Discount rate (k) = 15%
Value of the bond (V0) = ?
We know, Value of the bond:
1
1− 𝑛 𝑀𝑉 𝑜𝑟 𝑅𝑉
(1 + 𝑘)
V0 =I{ 𝑘/𝑟
}+
(1 + 𝑘)𝑛
1
1− 12
(1 + 0.15) 1,000
= 100 × { 0.15
}+
(1 + 0.15)12

= 100 × 5.42062 + 186.91

= Tk. 728.97
So, the value of the bond is Tk. 728.97.

Problem – 04 Bond value calculation when coupon is paid semiannually:

Miracle Industries has outstanding a Tk. 1,000 par-value bond with an 8% coupon interest rate. The bond has 12 years
remaining to its maturity date. Using the 10% required return, find the bond's value when interest is paid semiannually.

Solution
Given that,
Face Value = Tk. 1,000
Coupon interest rate = 8%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 8% = Tk. 80
Maturity period (n) = 12 years
Maturity Value (MV)= Tk. 1,000
Required rate of return (k) = 10%
No. of compounding per year (m) = 2
 Value of the bond (V0) =?
Value of the bond when interest is paid semiannually:
1
1− 𝑛×𝑚
𝑘
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 (1 + )
𝑚 𝑀𝑉 𝑜𝑟 𝑅𝑉
V0 = 𝑘 + 𝑘 𝑛×𝑚
𝑚 (1 + )
𝑚 𝑚
{ }
1
1−
.10)12×2
80 (1 +
2 1,000
= × .10 + .10 12×2
2 (1 + )
2 2
{ }
1
1− 24
(1 + 0.05) 1,000
= 40 × { 0.05
}+
(1 + 0.05)24

= 40 × 13.79864 + 310.07
= Tk. 862.02
The value of the bond when interest is paid semi-annually is Tk. 862.02. tk.

Problem – 05 [NU. – 2008]

A Tk. 2,500 par value bond bearing 8 percent coupon rate having exactly 10 years remaining to maturity currently sells at
Tk. 1.500. Interest is paid semiannually. If the nominal required rate of return is 12.50 percent; find the intrinsic value of
the bond.

Solution
Given that,
Par value or face value = Tk. 2,500
Coupon interest rate = 8%
Coupon interest payment (I) = Face value × Coupon interest rate
= 2,500 × 8% = Tk. 200
Maturity period (n) = 10 years
Maturity Value (MV) = Tk. 1,500
Required rate of return (k) = 12.5% or .125
No. of compounding per year (m) = 2
Value of the bond (V0) =?
Value of the bond when interest is paid semiannually:
1
1− 𝑛×𝑚
𝑘)
𝐼 (1 +
𝑚 𝑀𝑉 𝑜𝑟 𝑅𝑉
V0 = 𝑘 + 𝑘 𝑛×𝑚
𝑚 (1 + )
𝑚 𝑚
{ }
1
1− 10×2
.125)
200 (1 +
2 1,500
= × .125 + .125 10×2
2 (1 + )
2 2
{ }
1
1− 20
(1 + 0.625) 1,500
= 100 × { 0.625
}+
(1 + 0.625)20

= 100 × 11.24072 + 0.09099

=Tk. 1,124.1629

Problem – 06 Current yield calculation:

Heath Foods' bonds have 7 years to maturity. The bonds have a face value of Tk. 1,000 and yield to maturity of 8%. They
pay interest annually and have a 9% coupon rate. What is their current yield?

Solution
Given that,
Par value or face value = Tk. 1,000
Coupon interest rate = 9%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 9% = Tk. 90
Maturity period (n) = 7 years
Maturity Value (MV) = Tk. 1,000
Required rate of return (k) = 8% or 0.08
Current price of the bond (V0) =?
Before calculating current yield, at first we have to calculate the current price (V0).
Value of the Health Food's bond:
1
1− 𝑛 𝑀𝑉 𝑜𝑟 𝑅𝑉
(1 + 𝑘)
V0 =I{ 𝑘/𝑟
}+
(1 + 𝑘)𝑛
1
1− 1,000
(1 + 0.08)7
= 90 × { 0.08
}+
(1 + 0.08)7
= 90 × 5.20637 + 583.49
= Tk. 1,052.06
So, the current yield (CY) of the bond:
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 90
CY = = = 0.0855 or 8.55%
𝑉0 1,052.06
The current yield of the bond is 8.55%.

Problem – 07 Simple irredeemable bond value calculation:

Let, you have purchased a bond for which you will get an amount of interest of Tk. 100 per year. If the required rate of
return is 15%, then what will be the current price of the bond?

Solution
Given that,
Coupon interest payment (I) = 100
Required rate of return (k) = 15% or 0.15
Current price of the bond (V0) =?
We know, value of irredeemable bond:
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 100
V0 = = = Tk. 666.67
𝑘 0.15
So, the value of the irredeemable bond is Tk. 666.67.

Problem – 08 Value of a zero coupon bond:

Calculate the value of a zero coupon bond which have a maturity value of Tk. 5,000, required rate of return 12% & maturity
period is 8 years.

Solution
Given that,
Maturity value (MV) = Tk. 5,000
Required rate of return (k) = 12%
Maturity period (n) = 8
Value of zero coupon bond:
𝑀𝑉
V0 =
(1 + 𝑘)𝑛
5,000
=
(1 + 0.12)8
= Tk. 2019.42

Problem – 09 Calculation of YTM, sale at discount:

A Tk. 1,000 par value bond with 8 % coupon has been issued at 6 % discount and redeemed at face value after 10 years.
What is the bond's approximate yield to maturity (YTM)?

Solution
Given that
Face Value = Tk. 1,000
Coupon interest rate = 8%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 8% = Tk. 80
Maturity period (n) = 10 years
Maturity Value (MV) = Tk. 1,000
Selling price (V0) = Face value – discount = 1,000 – 1,000 × 6% = Tk.940
Approximate Yield to Maturity (YTM) =?
Bond's approximate yield to maturity:
𝑅𝑉 − 𝑆𝑉
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡+
𝑛
YTM (app.) = 𝑅𝑉 + 𝑆𝑉 × 100
2
1,000 − 940
80 +
10
= 1,000 + 940 × 100
2
80 + 6
= × 100
970
= 0.0887 × 100 = 8.87%

Problem – 10 Calculation of YTM, sale at premium:

A Tk. 1,000 par value bond with 12% coupon has been issued at 2 % premium and redeemed at face value when it will be
matured after 5 years. Calculate the bond's approximate yield to maturity (YTM).

Solution
Given that,
Face Value = Tk. 1,000
Coupon interest rate = 12%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 12% = Tk. 120
Maturity period (n) = 5 years
Maturity Value (MV) = Tk. 1,000
Selling price (V0) = Face value + premium = 1,000 + 1,000 × 2% = Tk. 1,020
Approximate Yield to Maturity (YTM) =?
Bond's approximate yield to maturity:
𝑀𝑉 − 𝑉0
𝐼+
𝑛
YTM (app.) = 𝑀𝑉 + 𝑉0 × 100
2
 1,000 − 1020
120 +
5
= 1,000 + 1020 × 100
2
120 + (− 4)
= × 100
1,010
= 0.1149 × 100 = 11.49%

Problem – 11 Calculation of YTM, sale at discount and redeemed at premium:

A 10% coupon bond with 10 years. maturity is currently selling 5% discount and redeemed at 4% premium. If flotation
cost is 3% of value (Tk. 1000), calculate its approximate YTM.

Solution
Given that,
Face value or par value = Tk. 1,000
Coupon interest rate = 10%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 10% = Tk. 100
Sale value (SV) = Face value – discount
= 1,000 – (1,000 × 5%) = Tk. 950
Net sale Value (NSV) = Sale value – Floatation cost
= 950 – (1,000 × 3%) = 920
Redemption value (RV) = Face Value + Premium
= 1,000 + (1,000 × 4%) = Tk. 1,040
Maturity period (n) = 10
The approximate yield to maturity (YTM):
𝑅𝑉 −𝑁𝑆𝑉 𝑜𝑟 𝑉0
𝐼+
𝑛
YTM (app.) = 𝑅𝑉 +𝑁𝑆𝑉 𝑜𝑟 𝑉0 × 100
2
1,040 − 920
120 +
5
= 1,040 + 920 × 100
2
120 + 12
= × 100
980
= 0.1143 × 100 = 11.43%
Problem – 12 [NU. – 2011]
A 9%, 12 Years Bond of Tk. 5,000 has been issued @ 5% discount and redeemed @ 3% premium. If flotation cost is 2% of
face value, then calculate its approximate YTM.

Solution
Given that,
Face value or par value = Tk. 5,000
Coupon interest rate = 9%
Coupon interest payment (I) = Face value × Coupon interest rate
= 5,000 × 90 = Tk. 450
Sale value (SV) = Face value – Discount
= 5,000 – (5,000 × 5%) = Tk. 4,750
Net sale Value (NSV) = Sale value – Floatation cost
=4,750 – (6,000 × 2%) =Tk. 4,650
Redemption value (RV) = Face Value + Premium
=5,000 + (5,000 × 3%) = Tk. 5,150
Maturity period (n) = 12
The approximate yield to maturity (YTM) when the bond is sold at discount:
𝑅𝑉 − 𝑁𝑆𝑉
𝐼+
𝑁
YTM = 𝑅𝑉 +𝑁𝑆𝑉 × 100
2
5,150 − 4,650
450 +
12
= 5,150 + 4,650 × 100
2
450 + 41.67
= × 100
4,900
= 0.1003 × 100 = 10.03%

Problem – 13 Calculation of YTC with semiannual with semiannual coupon payment:

Assume that you purchased an 8 percent, 20-year, Tk. 1,000 par, semiannual payment bond priced at Tk. 1,012.50 when
it has 12 years remaining until maturity. Compute its yield to call if the bond is callable in three years with an 8 percent
premium.

Solution
Given that,
Face Value = Tk. 1,000
Coupon interest rate = 8%
Coupon interest payment (I) = Face value × Coupon interest rate
= 1,000 × 8% = 80
Call period (n) = 3 years
Call price (CP) = Face value + Premium
= 1,000 + 1,000 × 8% = Tk. 1,080
No. of compounding per year (m) = 2
Selling price (V0) = 1,012.50
Yield to call (YTC)=?
Bond's approximate yield to call:
𝐼 𝐶𝑃 − 𝑉0
+
𝑚 𝑛×𝑚
YTC = 𝐶𝑃 + 𝑉0 × 100
2
80 1,080 − 1,012.5
+
2 3×2
= 1,080 + 1,012.5 × 100
2
40 + 11.25
= × 100
1,046.25
= 0.0490 × 100 (Semiannually)
= (0.0490 × 2) × 100 = 0.0980 × 100 = 9.80% (Annually)
Note: েচ্ছন রঞখচ্ছত হচ্ছব যখন Semiannual approximate YTC কবর করঞ হয় তখন প্রেচ্ছে করটটঞ semiannually বঞ ৬ েঞচ্ছসর কবর
হয়। এরপর ঐ করটচ্ছক ২ দ্বঞরঞ গুণ কচ্ছর annual করচ্ছত হয়।
Problem– 14 [NU. BBS – 2007]
(a) Calculate the YTM for the following bonds
(i) A 12%, 25-year bond with a current price of Tk. 980.
(ii) A 6%, 12-year bond with a current price of Tk. 840.
(iii) A 9%, 10-year bond with a current price of Tk. 725.
Face value of these bond is Tk. 1,000
(b) Calculate the Duration of a 12% coupon bond with 10 years remaining to maturity and selling at par. Use annual interest
rates.
Solution
Req. (a): Calculate Yield to Maturity (YTM):
(i)
Here,
I = Amount of Interest = 1,000 × 12% = Tk. 120
FV = Face Value = Tk. 1,000
SV = Current Price = Tk. 980
N = No. of years = 25 years
YTM =?
We know that,
𝐹𝑉−𝑆𝑉
𝐼+
𝑁
YTM = 𝐹𝑉+𝑆𝑉 × 100
2
1,000 − 980
120 +
25
= 1,000 + 980 × 100
2
120 + 0.8
= × 100
990
= 0.1220 × 100
= 12.20%
(ii)
Here,
I = Amount of Interest = 1,000 × 6% = Tk. 60
FV = Face Value = Tk. 1,000
SV = Current Price = Tk. 840
N = No. of years = 12 years
YTM =?
We know that,
𝐹𝑉−𝑆𝑉
𝐼+
𝑁
YTM = 𝐹𝑉+𝑆𝑉 × 100
2
1,000 − 840
60 +
12
= 1,000 + 840 × 100
2
60 + 13.333
= × 100
920
= 0.0797 × 100
= 7.97%
(iii)
Here,
I = Amount of Interest = 1,000 × 9% = Tk. 90
FV = Face Value = Tk. 1,000
SV = Current Price = Tk. 725
N = No. of years = 10 years
YTM =?
We know that,
𝐹𝑉−𝑆𝑉
𝐼+
𝑁
YTM = 𝐹𝑉+𝑆𝑉 × 100
2
1,000 − 725
90 +
10
= 1,000 + 725 × 100
2
 90 + 27.5
= × 100
862.5
= 0.1362 × 100
= 13.62%
Req. (b): Calculation of Duration:
Here,
i = YTM = 12% = 0.12
[Note: As bonds are selling at par Thus, Selling price = Face Value .ᱸ. YTM = Coupon Rate = 12%]
n = Remaining life = 10 years
We know that,
1 − (1 +1 𝑖)𝑛
Duration ={ 𝑖
} (1 + i)
1
1−
(1 + 0.12)10
={ .12
} (1 + .12)

= (5.650223) × (1 +.12)
= 6.3282 years
= 6.33 years

Problem -15
Sb Ltd. Has a 14% debenture with face value of Tk. 100 that matures at par in 15 years. The debenture is callable in five
years at Tk. 114. It currently sells for Tk.105. calculate the bond’s yield to maturity and yield to call.
Solution:
Here,
MV (Maturity value)= 100
I (Interest Amount) = 100×14%= 14
P0/ SV (Current Market Price) = 105
n(No of Year)= 15 Years
We know,
𝑭𝑽−𝑺𝑽
𝑰+
𝑵
YIM (Yield to Maturity) = 𝑭𝑽+𝑺𝑽 × 𝟏𝟎𝟎
𝟐
𝟏𝟎𝟎−𝟏𝟎𝟓
𝟏𝟒+
𝟏𝟓
= 𝟏𝟎𝟎+𝟏𝟎𝟓 × 𝟏𝟎𝟎
𝟐
𝟏𝟑.𝟔𝟕
= 𝟏𝟎𝟐.𝟓 × 𝟏𝟎𝟎
= 0.1333×100
= 13.33%
Again, We know
𝐶𝑃−𝑆𝑉
𝐼+
𝑁
YTC (Yield to Call)= 𝐶𝑃+𝑆𝑉 × 100
2
114−105
14+
5
= 114+105 × 100
2
11.2
= 107 × 100
= 0.1047×100 = 10.47%
Here,
MV(Maturity Value) = 100
CV = 14
I(Interest Amount)= 100×14%
n(No of year) = 5 years
Problem -16
Star Company’s bonds have 4 years remaining to maturity. The bonds have a face value of Tk. 1000 at 10% coupon rate.
What is the yield to maturity at a current price of Tk. 1100? Would you pay Tk. 1200 for one of these bonds if the
appropriate rate of interest was 12%? Give explanation of your answer. (Ac-2019)
Solution:
Given, n (No of Year)= 4
FV (Face value of bond) = 1000
SV selling price) = 1100
I (Interest Amount) = 1000×10%=100
𝑭𝑽−𝑺𝑽
𝑰+
𝑵
We know, YTM (Yield to Maturity) = 𝑭𝑽+𝑺𝑽 × 𝟏𝟎𝟎
𝟐
𝟏𝟎𝟎𝟎−𝟏𝟏𝟎𝟎
𝟏𝟎𝟎+
𝟒
= 𝟏𝟎𝟎𝟎+𝟏𝟏𝟎𝟎 × 𝟏𝟎𝟎
𝟐
−𝟏𝟎𝟎
𝟏𝟎𝟎+
𝟒
= × 𝟏𝟎𝟎
𝟏𝟎𝟓𝟎
𝟏𝟎𝟎−𝟓
= 𝟏𝟎𝟓𝟎 × 𝟏𝟎𝟎
= 7.14%
Again, Here, I (Interest) = 1000×12% = 120
MV (Maturity value) = 1000
1
1−(1+𝑘)𝑛 𝑀𝑉
Now value of bond, 𝑉𝑜 = 𝐼 { 𝑘
} + (1+𝑘)𝑛
1
1−(1+0.12)4 1000
=120 + { } + (1+0.12)4
0.12
= 120×3.037349347+635.5181
= 364.4819+635.5181
= Tk. 1000
Explanation: Since value of the bond < Current Market price (1200). So we should not pay Tk.1,200 for the bond.

Problem -17
Abc companies bond, which is currently sells for Tk. 1080 has a 10% coupon interest rate and Tk. 1000 per value, pays
interest annually and has 10 years to maturity. Calculate the approximate yield to maturity (YTM) And also calculate the
YTM for 10 years Zero- Coupon bond sold at Tk. 500.

𝑭𝑽−𝑺𝑽
𝑰+
𝑵
Solution: We know, YTM (Yield to Maturity) = 𝑭𝑽+𝑺𝑽 × 𝟏𝟎𝟎
𝟐
𝟏𝟎𝟎𝟎−𝟏𝟎𝟖𝟎
𝟏𝟎𝟎+
𝟏𝟎
= 𝟏𝟎𝟎𝟎+𝟏𝟎𝟖𝟎 × 𝟏𝟎𝟎
𝟐
𝟏𝟎𝟎−𝟖
= × 𝟏𝟎𝟎
𝟏𝟎𝟒𝟎
𝟗𝟐
= 𝟏𝟎𝟒𝟎 × 𝟏𝟎𝟎
= .5%
Here, n(No of Year)= 10 years
FV (Face value of bond) = 1000
SV (Net selling price) = 1080
I (Interest Amount) = 1000×10%=100
Again, For Zero coupon bond :

𝐹𝑉−𝑆𝑉
𝐼+
𝑁
YTM(Yield to Maturity): 𝐹𝑉+𝑆𝑉 × 100
2
 1000−500
0+
10
= 1000+500 × 100
2
50
= 750 × 100
= 6.67%
Here, n(No of Year)= 10 years
FV (Face value of bond) = 1000
SV (Net selling price) = 500
I (Interest Amount) = 1000×0%=0

Problem -18
Nu-2008
A tk .1000 bond is currently selling for tk. 900. The coupon rate is 14% and the appropriate discount rate is
15% .
Calculate the value of bond should it be bought ?What is current Yield? What would be the Yield to Maturity
(YTM) if the maturity period is 5 years.
Given that
Calculation value of Perpetual bond’
𝐼𝑛𝑡𝑟𝑒𝑠𝑡 140 Face value(FV)= 1000tk.
V0 = = = Tk. 933.333 Sales value (SV)= 900 tk.
𝑘 0.15
Coupon rate=14%
Calculation current yield (CY) of the bond: Interest(I)= 1000*12% =140 tk.
𝐼 Rate of return (ke) = 15%
CY =
𝑠𝑎𝑙𝑒𝑠 𝑝𝑟𝑖𝑐𝑒0 Maturity period (MP) = 5 years
140
= *100
900
= 15.556%
Calculation Of YTM
𝐹𝑉−𝑁𝑆𝑉
𝐼+
𝑁
YTM(Yield to Maturity) = 𝐹𝑉+𝑁𝑆𝑉 × 100
2
1000−900
140+
5
= 1000+900 × 100
2
= 16.842%

Problem-19 Nu-2007
The Vision corporation issued a new series of bonds on January 1, 2000. The bonds were sold at par (par
value tk. 1000), have a 12% coupon rate mature on December 31, 2030.
Coupon payment are made semi-annually.

i)what was the YTM of vision’s bonds on January 1,2000.

Solve:
Given, FV=1,000
SV= 1,000
N= 31
Interest(I)= 1000*12%=120
Compounding Year (m)= 2
YTM=?
Ii)What was the price of the bonds on January1,2005 , Assuming that the level of interest rates had fallen to
10 % ?.
Solve : Given ,
FV=1000, N= 5 , Interest (I) =1000*10% = 100, M= 2, MV =1000,
Vo = ?

iii)On July 1, 2008, the visions bond sold for Tk. 890. What was the YTM at that date
Given ,
Fv= 1000, SV= 890, M= 2, N= 8.5 years , I = 120 tk , YTM =?
Problem -20:
A Tk. 2500 per value bond bearing 8% coupon rate having exactly 10 years remaining to maturity, currently sells at
Tk. 1500. Interest is paid semiannually. If the nominal required rate of return is 12.5%, find the intrinsic value of the
bond.
Solution:
𝑰
𝒎 𝟏 𝑭𝑽
Bond Value (𝑽𝐛 ) = 𝒓 {𝟏 − 𝒓 𝒎𝒏
}+ 𝒓 𝒎𝒏
Here, FV= 2500
𝒎 (𝟏+ ) (𝟏+ )
𝒎 𝒎
200
2 1 2500
= .125 {1 − .𝟏𝟐𝟓 𝟐×𝟏𝟎
}+ .𝟏𝟐𝟓 𝟐×𝟏𝟎
INT (I) = FV×PIR = 2500×8% = 200
2 (𝟏+ ) (𝟏+ )
𝟐 𝟐
100 1 2500
= 0.0625 {1 − (1+0.125)20} + (1+0.125)20 n= 10, r= 12.50% = 6.25%
1 2500
= 1600{1 − (1.125)20 } + (1.125)20
1 2500
= 1600{1 − 10.545} + 10.545
= 1600{1 − 0.09483} + 237.079
= 1600×0.90517+237.079
= 1448.272+237.079
= 1685.351

Problem -21
(a) MIM Company’s bonds of the face value of Tk. 1000 with 10% coupon rate. Bonds of this type currently yield
12%. What is the market price of debenture of the company?

(b) What would happen to market price of the bonds if yield rises to 16% and drops to 10%?

(c) What would be the market price of the bonds in situation (a) if it is assumed that bonds were originally having a
10 years maturity period which is 5 years away from now?

(d) Will you pay Tk. 800 to buy the bonds specified in situation (c)? and why?
Solution:
𝑰
(a)𝐕𝐛 = 𝑯𝒆𝒓𝒆, 𝑰 = 𝟏𝟎𝟎𝟎 × 𝟏𝟎% = 𝑻𝒌. 𝟏𝟎𝟎
𝒌𝒅
𝟏𝟎𝟎
= 𝟎.𝟏𝟐 𝒌𝒅 = 𝟏𝟐% = . 𝟏𝟐
= Tk. 833.33

𝑰 𝑰
(b)(i) 𝑽𝐛 = (𝒊𝒊)𝑽𝐛 =
𝒌𝒅 𝒌 𝒅
𝟏𝟎𝟎 𝟏𝟎𝟎
= 𝟎.𝟏𝟔 = 𝑻𝒌. 𝟔𝟐𝟓 = = 𝑻𝒌. 𝟏𝟎𝟎𝟎
𝟎.𝟏𝟎
Here, I= 1000×10%=100
i = 12%=0.12 n= 5 years

𝟏 𝒏
𝑰{𝟏−( ) } 𝑴𝑽
𝟏+𝒊
(c) 𝑽𝐛 = + (𝟏+𝒊)𝒏
𝒊
𝟏 𝟓
𝟏𝟎𝟎{𝟏−( ) }
𝟏.𝟏𝟐 𝟏𝟎𝟎𝟎
= + (𝟏.𝟏𝟐)𝟓
𝟎.𝟏𝟐
𝟒𝟑.𝟐𝟓𝟕𝟑 𝟏𝟎𝟎𝟎
= + 𝟏.𝟕𝟔𝟐𝟑
𝟎.𝟏𝟐

= 360.48+567.44
= Tk. 927.92

(d) Yes, I would like to buy the bond by Tk. 800 because present value of the bond is Tk. 927.92.

Problem -22
Calculate the value of a Tk. 5000 per-value bond paying quarterly interest at an annual coupon interest rate of 10% and
having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly.
Solution:
Here, I= Tk 5000×10% = Tk. 500
i= 12% = 0.12
n= 10 years m= 4 times
MV= Tk. 5000
𝐼 1
{1− }
𝑚 𝑖 𝑛𝑚
(1+ ) 𝑀𝑉
𝑚
𝑉0 = 𝑖 + 𝑖 𝑛𝑚
𝑚 (1+ )
𝑚

500 1
{1− }
4 0.12 10×4
(1+ ) 5000
4
= 0.12 +0.12 10×4
4 (1+ )
4
1
125{1−(1.03)40 } 5000
= 0.03
+
(1.03)40
125×0.693443
= 0.03
+ 1532.78
= 2889.346+1532.78 = Tk. 4422.126

Problem-23:
Yield to maturity: The Salem Company bond currently sells for Tk. 955, has a 12% coupon interest rate and a Tk. 1,000
par value, pays interest annually, and has 15 years to maturity.
a. Calculate the yield to maturity (YTM) on this bond. 12.58%
b. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market
value of a bond.
Problem-24:
Fast and Loose Company has outstanding an 8 percent, four-year, Tk. 1,000 par value bond on which interest is paid
annually.
(a) If the market required rate of return is 15 percent, what is the market value of the bond?
(b) What would be its market value if the market-required return dropped to 12 percent to 8 percent?
(c) If the coupon rate were 15 percent instead of 8 percent, what would be the market value (under part a.
If the required rate of return dropped to 8 percent, what would happen to the market price of the bond?
Solution:
Required- (a):

𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
Bond Value = INT ( ) + (𝟏+𝐫)𝐧 Where ,
𝐫
MV = TK. 1000
1
1− (1.15)4 1000 INT = 1000 × 8% = TK. 80
= 80 ( .15
) + (1.15)4
r = 15%
1−.57175 1000 n=4
= 80 ( .15
) + 1.749
.42825
= 80 ( .15 ) + 571.76
= 80 × 2.855 + 571.76
= 228.40 + 571.76
= TK. 800.16

Required (b) :
𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
(1) Bond Value = INT ( 𝐫
) + (𝟏+𝐫)𝐧
1
1− (1.12)4 1000
= 80 ( ) + (1.12)4
.12
1− .635518.12 1000
= 80 ( )+
.12 1.5735
.364482
= 80 ( .12 ) + 635.53
= 80 × 3.03735 + 635.53
= 242.988 + 635.53
= TK. 878.518

𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
(2) Bond Value = INT ( ) + (𝟏+𝐫)𝐧
𝐫
1
1− (1.08)4 1000
= 80 ( ) + (1.08)4
.08
1− .73503 1000
= 80 ( .08
) + 1.360488
.26497
= 80 ( ) + 735.0298
.08
= 80 × 3.31213 + 735.0298
= 264.97 + 735.03
= TK. 1000

Required (c) :
𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
Bond Value = INT ( ) + (𝟏+𝐫)𝐧 Where,
𝐫 MV = TK. 1000
1
1− (1.08)4 1000
INT = 1000 × 15% = TK. = 150
= 150 ( .08
) + (1.08)4 r = 8%
n = 4 year.
1− .735029 1000
= 150 ( .08
) + 1.3605
.264971
= 150 ( .08 ) + 735.02
= 150 × 3.3121 + 735.02
 = 496.82 + 735.02
= TK. 1,231.84

Problem-25:
Vision Industries has a Tk. 1,000 par value bond with an 8% coupon interest rate outstanding. The bond has 12 years
remaining to its maturity date.
(a) If interest is paid annually, what is the value of the bond when the required return (1) 7%, (2) 8%, and (3) 10 % .
(b) Indicate for each case in a whether the bond is selling at a discount, at a premium, or at its par value.
(c) Using the 10% required return, find the bond's value when interest is paid semiannually.

Solution:
We know,
Required- (a):

1
1− (1+r)n MV
1. Bond Value = INT ( ) + (1+r)n Given,
r INT = 1000 × 8% = TK. 80
1 MV = TK. 1000.
1− (1.07)12 1000
= 80 ( .07
) + (1.07)12 N = 12 year.
1− .44401 1000
= 80 ( .07
) + 2.2522
.55599
= 80 ( ) + 444
.08
=(80 × 7.9427) + 444
= 635.42 + 444
= TK. 1079.42.

𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
2. Bond Value = INT ( 𝐫
) + (𝟏+𝐫)𝐧
1
1− (1.08)12 1000
= 80 ( .08
) + (1.08)12
1− .39711 1000
= 80 ( )+
.08 2.5182
.60289
= 80( .08 ) + 397.11
= 80 × 7.5361+ 397.11
= TK. 1000.

𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕
3. Bond Value = INT ( 𝐫
) + (𝟏+𝐫)𝐧
1
1− (1.10)12 1000
= 80 ( .10
) + (1.10)12
1− .318631 1000
= 80 ( .10
) + 3.1384
.681369
= 80( .10 ) + 318.63
= 80 × 6.8137 + 318.63
= 545.10 + 318.63 = TK. 863.73

Required-(b):
(1) Kd =7%, Bond Value = Tk. 1079.42, Sales at premium.
 (2) Kd =8%, Bond Value = Tk. 1000, Sales at par value
(3) Kd =10%, Bond Value = Tk. 863.73, Sales at discount.

Required-(c):
𝟏
𝟏− (𝟏+𝐫)𝐧 𝐌𝐕 8%
Bond Value = INT ( ) + (𝟏+𝐫)𝐧 Periodic Interest rate = 2 = 4%
𝐫
1
1− (1.05)24
Periodic Interest = 1000 x4%= Tk.
1000
= 40 ( ) + (1.05)24 40
.05 10%
1− .31006791 1000
Periodic return = 2 = 5%
= 40 ( .05
) + 3.2251 N = 12 × 2 = 24
.68993
= 40 ( .05 ) + 310.07
= 40 × 13.7986 + 310.07
= 551.94 + 310.07
= TK. 862.01

Problem :26 Complex Systems has an outstanding issue of Tk. 1,000 par value bonds with a 12% coupon interest rate.
The issue pays interest annually and has 16 years remaining to its maturity date.
(a) If bonds of similar risk are currently earning a 10% rate of return, how much should the Complex Systems bond sell for
today?
(b) Describe the two possible reasons why similar risk bonds are currently earning a return below the coupon interest rate on
the Complex Systems bond.
(c) If the required return were at 12% instead of 10%, what would the current value of Complex Systems bond be? Contrast
this finding with your findings in part a and discuss.
Solution:

Required-(a):

𝟏
𝟏−(𝟏+𝐫)𝐧 𝐌𝐕 Here,
Bond value = INT { } + (𝟏+𝐫)𝐧
𝐫 INT = 1,000 × 12%
𝟏−
𝟏 = 120
(𝟏.𝟏𝟎)𝟏𝟔 𝟏𝟎𝟎𝟎
= 120 { } + (𝟏.𝟏𝟎)𝟏𝟔 MV = 1000
.𝟏𝟎
N = 16
1.217629 1000
= 120 { .10
} + 4.5950 R = 10% = .10
.78237
= 120 ( .10 ) + 217.6279
= (120 × 7.8238) + 217.6279
= 938.856 + 217.627
= TK. 1156.48

Required-(b):
Since complex system's bond were issued, there may have been a shift in supply demand relationship for money or a
change in the risk of the firm.
Required-(c):
𝟏 Here,
𝟏−(𝟏+𝐫)𝐧 𝐌𝐕
Bond value = INT { 𝐫 } + (𝟏+𝐫)𝐧 INT = 1,000 × 12%=120
𝟏 MV = 1000
𝟏− 𝟏𝟎𝟎𝟎
(𝟏.𝟏𝟐)𝟏𝟔 N = 16
= 120 { .𝟏𝟐 } + (𝟏.𝟏𝟐)𝟏𝟔
r = 12% = .12
1− .16312166 1000
= 120 { .12
} + 6.1304
.836878
= 120 ( )+ 163.1215
.12
 = (120 × 6.9740) + 163.1215
= 836.88 + 163.1215 = TK. 1,000

Explanation: When the required return in equal to the coupon rate, the bond value is equal to par value In contrast to (a)
above, if the required return is less than the coupon rate, the bond will sell at a premium (its value will be greater than
par.)

Problem-:27

(a) A company's Bonds of the face value of Tk. 1,000 bear an 8 percent coupon rate. Bonds of this type currently
yield 10 percent. What is the market price of Bonds of the company?

(b) What would happen to the market price of the Bonds if interest rises to (i) 16 percent, and (ii) drops to 12.50
percent?

(c ) What would be the market price of the Bonds in situation (a) if it is assumed that Bonds were originally having a 15
year maturity period and the maturity period is 4 years away from now?

(d ) Would you pay Tk. 900 to purchase Bonds specified in situation (c)? Explain.

Solution:
Required-(a):

INT
Bond value = Interest rate Where,
INT = 1000 × 8% = TK.
80
∴ Bond Value = .10 = TK. 800. 80
r = 10%
Required-(b):
INT
(1) Bond value = Interest rate Where,
INT = 1000 × 8% = TK.
80
∴ Bond Value = .16 = TK. 500 80
r = 16%
INT
(2) Bond value = Interest rate
Where,
80
INT = 1000 × 8% = TK.
∴ Bond Value = .1250 = TK. 640 80
Required-(c): r = 12.50%
1
1− (1+r)n MV
Bond Value = INT ( ) + (1+r)n
r
1
1− 100
(1.10)4
= 80 ( ) + (1.10)4
.10
1− .68301 1000
= 80 ( ) + 1.4641
.10
.31699
= 80 ( 10 ) + 683.01
= (80 × 3.1699) + 683.01
= 253.59 + 683.01
= TK. 936. 60
Required-(d):
Yes, we would pay Tk. 900 for the purchase of Bonds, because its current worth (Tk. 936.60) is mor purchase price.

Problem-28:
Bond value and time Changing required returns:
Lynn Parsons is considering investing in eith outstanding bonds. The bonds both have Tk. 1,000 par values and 11%
coupon interest rates and pr interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity.
(a) Calculate the value of bond A if the required return is (1) 8%, (2) 11 %, and (3) 14%. Ans: 1120tk; 1000tk; 897tk;
(b) Calculate the value of bond A if the required return is (1) 8%, (2) 11 %, and (3) 14%. Ans :1257tk; 1000tk; 816tk;

Problem-29
A 10-year. 12 percent semiannul coupon bond, with a par value of Tk. 1,000, may be called in 4 years at a call price
of Tk. 1.060. The bond sells for Tk. 1.100. (Assume that the bond has just been issued
(a) What is the bond's yield to maturity? (Ans) ;5.24% B) What is the bond's current yield? Ans : 10.91%
C) What is the bond's capital gain or loss yield? Ans ; YTM-CY=-.43%
D) D) What is the bond's yield to call? Ans ; 5.09%
Problem-30
An investor recently purchased a bond with Tk. 20,000 face value, 12.50% coupon rate and 8.50 years remaining to
maturity. The investor paid Tk.20,500 for the bond. If bond can be called two years from now at a price of
Tk.21,160, What is it's YTC?

Prepared By Farhad Sir Director Of BBA VISION Coaching- 01710-767025