Let’s analyze an academic example, the analysis of variables describing the bond / debenture.

Suppose we have a bond with the following characteristics:

• to maturity is 2 years

• The nominal value of 150 €

• Interest coupons are paid once a year, at least 15 €

• market price is equal to 98.46%

• from the last interest payment 6 months have elapsed.

Calculate the market price and the profitability of this financial instrument.

Step 1. Calculate the market price, keeping in mind that it can take two forms: clean price and dirty price.

Market price includes the price of pure without interest and calculate it as the product of the market rate and the value of the denomination.

Thus, the market price is equal to the clean:

98.46% x 150 = 147.69 €

The market price is the price of dirty including accumulated interest and is calculated as the sum of the market rate and the accumulated interest.

Thus, the market price is equal to dirty:

98.46 + 0.5 * 15 = 105.96 €

Step 2. We calculate profitability, keeping in mind that the profitability are nominal and current.

Profitability is the ratio of the nominal value of the coupon face value, and is therefore equal to:

15 € / 150 € x 100% = 10%

Profitability is the ratio of the current coupon to the current market price of the bond, and is therefore equal to:

15 € / 98.46 * 100 = 15.23%

Main page Other posts