Reading 52: Fixed Income Valuation (Bond Valuation EQUATIONS)

Question 1

Calculate PV using Spot Rates

Answer 1

PV =CF/(1+S)^1 + CF/(1+S)^2 + CF/(1+S)^3

Question 2

Calculate the Full Price of a Bond

Answer 2

Full Price= PV* (1+ ANNUAL RATE/COUPON PAYMENTS)^ (t/T)

t= the days from purchase and the day from last payment 
T= the number of days between the 2 payments

Question 3

Calculate Flat Price

Answer 3

Flat Price= Full Price - Interest Expense

Interest Expense=Coupon rate * t/T
t= the number of days among purchase and last coupon date
T= the number of days between coupon dates

Question 4

Calculate Matrix Pricing (Linear Interpolation)

Answer 4

YTM using different well-known bonds:

YTM= closest YTM BOND + (FRACTION OF THE TRIANGLE )* (DIFFERENCE BETWEEN THE YTM1-YTM2)

Question 5

YTM Calculation

Answer 5

NPV = CF/1+YTM

Question 6

Calculate EFFECTIVE YIELD TO MATURITY

Answer 6

Effective Yield= (1+YTM/COMPOUNDING)^(COMPOUNDING ) - 1

Question 7

STREET CONVENTION

Answer 7

SAME AS EFFECTIVE YIELD CALCULATION

Question 8

Calculate Current Yield

Answer 8

Current Yield= Coupon Payment/ Bond Price

Question 9

Calculate Simple Yield

Answer 9

Simple Yield= (coupon payment+ SL Depreciation)/ Flat Price