Fill in the inputs in yellow

coloured boxes.This model

only works with Bonds of
value 100 INR/USD

Inputs

Market Price
Face value
Rate
NPER
YTM
Settelment date
Maturity date
Coup Numbers
Coup days till now
Coup days to next payment
No of days in coupan period
Coupan

INR 104.10
INR 100.00
8.4000%
2
7.77
25-Mar-2015
28-Jun-2024
9.2583333333
87
93
180
INR 8.40

0.08400
2
0.077718

Outputs
YTM
Accrued Interest
Clean Price
Dirty Price

0.0777
INR 4.0600
USD 104.1008
INR 108.1608

Quoted Price

To find the YTM , fill the market

price in input box's first box

In order to calculate price of a bond on date which is not a coupan date,accrued interes
Bonds prices are quoted as dirty price which means it includes accrued interest of days f
settlement date.Below is the calculator for calculating dirty price by inputting details

Inputs
Settlement Date
Maturity Date
Rate
Effective Rate
Coupan Amount
YTM
Effective YTM
Face Value
Market price
Frequency
Periods
Days from last Coupan
Days to next coupan
Total days in Coupan

31-Dec-2015
16-Dec-2033
8.91%
0.0891
INR 89.10
7.2644%
0.072644
INR 1,000.00
1
17.96
15
351
366

date,accrued interest has to be added.

ed interest of days from last coupan to
by inputting details in yellow boxes

Outputs
PV of Coupans

INR 878.46

PV of Face Value

INR 283.78

Clean Price

INR 1,162.24

Accrued Interest

INR 3.65

Dirty Price

INR 1,165.90

YTM

Err:523

This amount is the accrued interest, which is paid to the

seller of bond for holding that bond upto settelment date

This price is the sum of pv of coupans, face

value and accrued interest

To find out the price senstivity to yield, Inputs are filled in yellow coloured boxes . Now in Output Boxes (b
which can be used to forcast the changes in price of bond due to change in yield.We can verify

Settelment date
Maturity date
Frequency
Rate
YTM
Face Value
Amount of Coupan
coupan numbers
Pv of coupans
PV of FV
Dirty Price

discount
Inputs
1-Jan-2000
1-Jan-2005
1
7.00%
12.00%
INR 1,000.00
INR 70.00
5
INR 252.33
INR 567.43
INR 819.76

Term to maturity
Duration
Modified Duration
Rupee Duration
PVBP

PVBT is the interest rate senstivity of bond due to change in 1 basis

point in yield.This means that change in price due to change in a basis
point(.01) is .3158 rupee.

the value of beta will explain the senstivity of the bond

the bond senstivity will explain the change in the valuation of the bond wrt to change in the in
0 it is to be noted that the senstivity of a bond will explain the risk attach to a bond.
if a bond is highly sensitive it means the risk attach to the bond is high therfore one will prefer
a high duration in the bond is observed when life of the bond is of higher values on the contra

loured boxes . Now in Output Boxes (blue coloured boxes) , we can see that duration (wieghted ,Mduration and Rupee duration
nd due to change in yield.We can verify this by actually calculating the effect on price due to change in yield which is shown in ta

premium
Outputs
1-Jan-2000
1-Jan-2005
1
0.07
0.12000
INR 1,000.00
INR 70.00
5

Outputs
5.00
4.31
3.85
0.3158
0.0032

e to change in 1 basis
ue to change in a basis
.

par

1-Jan-2000
1-Jan-2005
1
15.00%
12.00%
INR 1,000.00
INR 150.00
5
INR 540.72
INR 567.43
INR 1,108.14

1-Jan-2000
1-Jan-2005
1
12.00%
12.00%
INR 1,000.00
INR 120.00
5
INR 432.57
INR 567.43
INR 1,000.00

819.76

819.76
0.0000015

($1,108.14)

the bond wrt to change in the int rate in the market

risk attach to a bond.
nd is high therfore one will prefer the low sensitive bond if risk appetite of the investors is less.
is of higher values on the contrary no duration bond will be prefered if in case the life of the bond is less

,Mduration and Rupee duration will be calculated

ange in yield which is shown in table 2.

Here we can see that change in the price of bond ,due to change in yield
similar to rupee duration or PVBT(in case increase of 1 BPS).And If
percentage change in price due to change in yield, it will be similar to

Table 2
Price senstivity to Yield
When Yield Increases
Yield
Price
change In Price

12.010%
INR 819.45
0.3157

We can change the yield by .01 BPS or 1% and Change in price i

duration/PVBP because of the impact of convexicity. An increase i
results in a smaller price decline than the price gain associated with a
in yield.

stors is less.
life of the bond is less

price of bond ,due to change in yield is appproximately

BT(in case increase of 1 BPS).And If we calculate the
o change in yield, it will be similar to Mduration/PVBT

Table 2

ce senstivity to Yield
When yield decreases
11.000%
INR 852.16
32.4029

1% and Change in price is not exactly equal to rupee

convexicity. An increase in a bonds yield to maturity
ice gain associated with a decrease of equal magnitude
in yield.

Suppose we have a portfolio of 10 bonds with different coupan, expiry and ytm on settelment date 29
to calculate the wieghted duration of portfolio according to the price of a particular bond's wieght in t
portfolio value will in

Bond
Face
value

Freq

Maturity

Yield

Rate

100
100
100
100
100
100
100
100
100
100
100
100

1
1
1
1
1
1
1
1
1
1
1
1

25-Aug-2001
9-Jan-2002
7-Apr-2003
23-Mar-2004
12-Aug-2005
10-Apr-2006
28-May-2007
31-Aug-2008
7-Apr-2009
28-Jul-2010
29-Jan-2011
20-Aug-2013

0.0860
0.0741
0.0915
0.0925
0.0942
0.0974
0.0984
0.0992
0.1028
0.1018
0.1050
0.1074

11.75%
11.15%
11.10%
12.50%
11.19%
11.68%
11.90%
11.40%
11.99%
11.30%
12.32%
12.40%

Set date

29-Mar-2001

Coupan

Days for
accrued
interest

INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR

11.75
11.15
11.10
12.50
11.19
11.68
11.90
11.40
11.99
11.30
12.32
12.40

214
80
352
6
227
349
301
209
352
241
60
219

When yield of the po

decreased by approxima

on settelment date 29 mar 2001. We want to see that by how much amount our portfolio will increase/decrease ,due to change in
ular bond's wieght in total portfolio value.And then we will calculate the mduration of portfolio which will tell us that by what pe
portfolio value will increase/decrease with changes in YTM.

Term to
maturity

Accrued
interest

0.41
0.78
2.02
2.98
4.37
5.03
6.16
7.42
8.02
9.33
9.83
12.39

6.98
2.48
10.85
0.21
7.06
11.32
9.95
6.62
11.72
7.56
2.05
7.54

Clean
Price

INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR
INR

101.21
102.73
103.46
108.15
106.11
107.44
109.20
107.52
109.05
106.55
110.84
111.09

Dirty price M Dur

INR 108.19
INR 105.21
INR 114.31
INR 108.36
INR 113.17
INR 118.76
INR 119.15
INR 114.14
INR 120.77
INR 114.11
INR 112.89
INR 118.63
1367.69

0.37
0.72
1.59
2.45
3.19
3.39
3.99
4.70
4.65
5.37
5.69
6.11

Wieght

0.079
0.077
0.084
0.079
0.083
0.087
0.087
0.083
0.088
0.083
0.083
0.087
1.00

Change in
When yield of the portfolio bonds is increased by 1 %, portfolio value is
value
ased by approximately 3.5 % , which is exactly equal to mduration of the
portfolio(shown in right)
% change

will increase/decrease ,due to change in ytm.We have

rtfolio which will tell us that by what percentage our

New
after
Weighted M increase
Dur
in
YTM+1
%
0.030
0.056
0.133
0.194
0.264
0.295
0.347
0.392
0.411
0.448
0.470
0.530
3.57

47.084
3.443

107.80
104.46
112.52
105.75
109.65
114.84
114.54
108.98
115.35
108.24
106.74
111.74
1320.61

Case Example

Here pension fund which has to pay back pension fund of Rs. 500000- to one of its investor, with gua
5=734664 in 5th year. So, suppose, pension fund company chooses to fund its obligation with Rs. 20,00
of 5 years). So, if interest rate remains at 8% the amount accrued will exactly be equal to the obligation o
down to 7% and in second case it reaches 9%. In 7% scenario, amount accrued will be equal to Rs. 734
will match the duration of his liabilities with the wieghted duration of bond

Repayment Details
Loan

500000

Rate

0.08

time

Amount due in 5 years

734664.038

Period
0.00
1.00
2.00
3.00
4.00
5.00

Case Example

0- to one of its investor, with guaranteed rate of 8% after 5 years. So, it is obligated to pay Rs. 500000 *(1.08) ^
fund its obligation with Rs. 20,000 , of 8% annual coupon bond selling at par value with 6 years maturity(duration
xactly be equal to the obligation of Rs.734664 in 5 years. Now we consider two scenarios, where interest rate goes
t accrued will be equal to Rs. 734702.46 in 5 years and in 9% scenario it will be Rs. 734801.27in 5 years.So if he
th the wieghted duration of bond, he is said to be immunized against interest rate risk

Inflows
40000.00
40000.00
40000.00
40000.00
40000.00
540000.00

0.08
54419.56
50388.48
46656.00
43200.00
40000.00
500000.00
734664.04

Yield
0.07
52431.84
49001.72
45796.00
42800.00
40000.00
504672.90
734702.46

0.09
56463.26
51801.16
47524.00
43600.00
40000.00
495412.84
734801.27

Cash flows at the end of period are discounted by yield prevailing at that time
because he will be repaying loan in fifth year beginning

We need to look up the price of a 10 yr 10% Treasury note. But, there are no Treasuries with a
maturity of 10 yrs that have a 10% coupon rate. we know that you cant price it the same as an 8%
bond, nor the same as a 9 or 11 yr bond.We have put together a series of bonds maturing at different
times every 6 months(Table1).We will discount the first two coupans of 1.5 year bond with yields of
first two bonds and by using solver we will find the third discount rate for 1.5 year bond. keep using
solver upto 10 bonds six months rate.Then we can price the 10 year 10% bond mentioned above

PAR VAL

100 Period
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10

Table 1
Coupan
Price
NA
NA
8.5
9
11
9.5
10
10
11.5
8.75
10.5
11
8.5
8.25
11
6.5
8.75
13
11.5
12.5

96.15
92.19
99.45
99.64
103.49
99.49
100
98.72
103.16
92.24
98.38
99.14
86.94
84.24
96.09
72.62
82.97
104.3
95.06
100

BEY

DF

0.0801
0.0830
0.0893
0.0925
0.0947
0.0979
0.1013
0.1059
0.1085
0.1102
0.1117
0.1158
0.1174
0.1199
0.1240
0.1228
0.1255
0.1315
0.1338
0.1362

1.0400
1.0415
1.0447
1.0462
1.0473
1.0489
1.0506
1.0530
1.0542
1.0551
1.0559
1.0579
1.0587
1.0600
1.0620
1.0614
1.0627
1.0658
1.0669
1.0681

Set these boxes as changing

cell for every bond ,so solver
could find a solution which
will make the total of pv of
cashflows same as price

0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10

Set these boxes as changing

cell for every bond ,so solver
could find a solution which
will make the total of pv of
cashflows same as price

o Treasuries with a
it the same as an 8%
maturing at different
ar bond with yields of
year bond. keep using
nd mentioned above

COUP RATE

To find out the 6 month rate after 1

year,Set this box as target cell and
put value of its price from Table 1
in solver

NA

NA

Coupans
Periods

0.50

1.00

We will discount
bond's yield and
yield.For last coupan
of 1.5 years , we w
price of 1.5 year
changing v

8.50

9.00

11.00

9.50

10.00

10.00

4.25

4.50

5.50

4.75

5.00

5.00

1.50

2.00

2.50

3.00

3.50

4.00

96.15
92.19
4.09
4.33
5.29
4.57
4.81
4.81
96.15
92.19
3.92
4.15
5.07
4.38
4.61
4.61
0.5 BOND
92.19
91.45
3.95
4.82
4.17
4.39
4.39
1YEAR BOND
99.45
87.22
4.59
3.96
4.17
4.17
PRICE OF 1.5 YEAR BOND
99.64
83.72
3.77
3.97
3.97
PRICE OF 2 YEAR BOND
3.75
3.75
PRICE OF 2.5 YEAR BOND 103.49 78.64
74.30
3.54
PRICE OF 3 YEAR BOND 99.49
PRICE OF 3.5 YEAR BOND 100.00 69.48
PRICE OF 4 YEAR BOND 98.72
PRICE OF 4.5 YEAR BOND
PRICE OF 5 YEAR BOND
PRICE OF 5.5 YEAR
PRICE OF 6
PRIC

We will discount the first coupan with 0.5 years zero coupan
bond's yield and next coupan by 1 year zero coupan bond's
yield.For last coupan and principal's discounting factor at the end
of 1.5 years , we will use solver by setting target cell as same to
price of 1.5 year bond given and setting discount factor as
changing value for the third and last cash flows

11.50

8.75

10.50

11.00

8.50

8.25

11.00

6.50

8.75

13.00

5.75

4.38

5.25

5.50

4.25

4.13

5.50

3.25

4.38

6.50

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

8.50

9.00

5.53
4.21
5.05
5.29
4.09
3.97
5.29
3.12
4.21
6.25
5.30
4.03
4.84
5.07
3.92
3.80
5.07
3.00
4.03
5.99
5.04
3.84
4.61
4.82
3.73
3.62
4.82
2.85
3.84
5.70
4.80
3.65
4.38
4.59
3.55
3.44
4.59
2.71
3.65
5.43
4.56
3.47
4.17
4.36
3.37
3.27
4.36
2.58
3.47
5.16
4.32
3.28
3.94
4.13
3.19
3.10
4.13
2.44
3.28
4.88
4.07
3.10
3.72
3.89
3.01
2.92
3.89
2.30
3.10
4.60
3.81
2.90
3.47
3.64
2.81
2.73
3.64
2.15
2.90
4.30
65.73
2.72
3.26
3.42
2.64
2.56
3.42
2.02
2.72
4.04
103.16 61.04
3.07
3.22
2.49
2.41
3.22
1.90
2.56
3.80
3.02
2.34
2.27
3.02
1.79
2.41
3.57
E OF 5 YEAR BOND 92.24 57.87
2.16
2.10
2.80
1.65
2.23
3.31
PRICE OF 5.5 YEAR BOND 98.38 53.68
49.65
1.96
2.62
1.55
2.08
3.10
PRICE OF 6 YEAR BOND 99.14
46.08
2.43
1.44
1.94
2.88
PRICE OF 6.5 YEAR BOND 86.94
42.78
1.32
1.77
2.64
PRICE OF 7 YEAR BOND 84.24
39.80
1.69
2.51
PRICE OF 7.5 YEAR BOND 96.09
37.10
2.31
PRICE OF 8 YEAR BOND 72.62
33.84
PRICE OF 8.5 YEAR BOND 82.97
PRICE OF 9 YEAR BOND 104.30
PRICE OF 9.5 YEAR BOND
PRICE OF 10 YEAR BOND

11.50

12.50

5.75

6.25

9.50

10.00

5.53
6.01
5.30
5.76
5.04
5.48
4.80
5.22
4.56
4.96
4.32
4.69
4.07
4.42
3.81
4.14
3.57
3.88
3.36
3.66
3.16
3.44
2.93
3.18
2.74
2.98
2.54
2.77
2.33
2.53
2.22
2.41
2.04
2.22
1.83
1.99
30.91
1.83
95.06
28.44
OF 10 YEAR BOND 100.00

Period

Forward rate

Disc factor

Coupan

PV

0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10

0.0801
0.0830
0.0893
0.0925
0.0947
0.0979
0.1013
0.1059
0.1085
0.1102
0.1117
0.1158
0.1174
0.1199
0.1240
0.1228
0.1255
0.1315
0.1338
0.1362

1.0400
1.0415
1.0447
1.0462
1.0473
1.0489
1.0506
1.0530
1.0542
1.0551
1.0559
1.0579
1.0587
1.0600
1.0620
1.0614
1.0627
1.0658
1.0669
1.0681

5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
105

4.8075
4.6095
4.3859
4.1731
3.9676
3.7539
3.5382
3.3088
3.1080
2.9243
2.7494
2.5441
2.3813
2.2128
2.0275
1.9274
1.7774
1.5889
1.4613
28.1068

Price

85.3537

From the bootstrapped forward rates, we can valuate 10

year 10% treasury bond

Instrument

Day count conv

Excel key

Treasury bills

Actual/365

The implicit yield in

the T-bill is the rate at which the issue price (which is the cut-off p
auction) has to be compounded, for the number of days to maturity
the maturity value.Example the price of a 91 day Treasury bill at issue is Rs.98.20, th
Yield

7.35

A 182-day T-bill, auctioned on January 18, at a price of R

95.510 would have an implicit yield of 9.4280% .Its value is compute
Yield
Time
Par

0.09428
182
100

Price

95.51

Auction day(91)

Auction day(182)

Every Wednesday

Wednesday preceeding non

reporting Friday

he implicit yield in
he issue price (which is the cut-off price in the
d, for the number of days to maturity, to equal
Treasury bill at issue is Rs.98.20, the yield on the same would be

tioned on January 18, at a price of Rs.

eld of 9.4280% .Its value is computed as follows

Auction day(364)

Payment day

Every alternate Wednesday

Following Friday

Attached instrument

Trading platform

STRIPS

RBIs INFINET Network