Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 32 views

    Floating-Rate-Bond-Valuation

    Uploaded by

    Harshit Dwivedi
    - A 5-year floating rate note pays quarterly interest at the market reference rate (MRR) plus 0.75%. - The note is currently priced at 95.50 per 100 of par value, representing a discount. - To calculate the discounted margin (DM), the goal seek function is used to determine the DM that results in the given price of 95.50, given the other parameters.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd

    Floating-Rate-Bond-Valuation

    Uploaded by

    Harshit Dwivedi
    32 views19 pages
    - A 5-year floating rate note pays quarterly interest at the market reference rate (MRR) plus 0.75%. - The note is currently priced at 95.50 per 100 of par value, representing a discount. - To calculate the discounted margin (DM), the goal seek function is used to determine the DM that results in the given price of 95.50, given the other parameters.

    Original Description:

    Original Title

    11. Floating-rate-bond-valuation

    Copyright

    © © All Rights Reserved

    Available Formats

    XLSX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    - A 5-year floating rate note pays quarterly interest at the market reference rate (MRR) plus 0.75%. - The note is currently priced at 95.50 per 100 of par value, representing a discount. - To calculate the discounted margin (DM), the goal seek function is used to determine the DM that results in the given price of 95.50, given the other parameters.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    32 views19 pages

    Floating-Rate-Bond-Valuation

    Uploaded by

    Harshit Dwivedi
    - A 5-year floating rate note pays quarterly interest at the market reference rate (MRR) plus 0.75%. - The note is currently priced at 95.50 per 100 of par value, representing a discount. - To calculate the discounted margin (DM), the goal seek function is used to determine the DM that results in the given price of 95.50, given the other parameters.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 19

    •where

    •PV = present value, or the price of the floatin


    •Index = reference rate, stated as an annual pe
    •QM = quoted margin, stated as an annual per
    •FV = future value paid at maturity, or the par
    •m = periodicity of the floating-rate note, the n
    •DM = discount margin, the required margin s
    •N = number of evenly spaced periods to matu
    of the floating-rate note
    an annual percentage rate
    an annual percentage rate
    ity, or the par value of the bond
    ate note, the number of payment periods per year
    uired margin stated as an annual percentage rate
    eriods to maturity
    Pricing a floating rate note

    Quoted Margin ==> Reference rate + Quoted margin

    Example : LIBOR + 0.5%


    QM 0.50%

    Discount Margin: ?
    Reference Rate + DM

    Example :
    A five year floating rate note pays three month LIBOR plu
    Calculate the price of the floater
    if the discount margin is 2.50%
    Assume the three month LIBOR is constant at 0.8%
    Use a 30/360 day convention and evenly spread period
    Par value 100

    Given
    Par value 100
    N 5
    Period 205 * no of qtrs
    Quoted Margin 2.15%
    Libor 0.80%
    Cash flows 0.7375 Pmt
    rt 0.0083
    Price ₹98.39 =-PV(E29,D25,E28,D23,0)
    Discount margin 2.50%
    Discount rate 0.0083

    Price using NPV ₹98.39


    ed margin

    onth LIBOR plus 2.15%

    t at 0.8%
    pread period

    Use NPV
    Term CFS
    1 0.7375
    2 0.7375
    3 0.7375
    4 0.7375
    5 0.7375
    6 0.7375
    E28,D23,0) 7 0.7375
    8 0.7375
    9 0.7375
    10 0.7375
    11 0.7375
    12 0.7375
    13 0.7375
    14 0.7375
    15 0.7375
    16 0.7375
    17 0.7375
    18 0.7375
    19 0.7375
    20 100.738
    Illustration No 2

    Suppose that a two-year FRN pa


    Currently, MRR is 1.25%.
    Index = 0.0125, QM =
    Suppose that the yield spread req
    DM = 0.0040
    Calculate the price of the bond

    Given
    Assume face value /Redemptio
    Term 2Years
    Coupon Payment MRR +0.50%
    MRR Index 1.25%
    Quoted Margi 0.50%
    Frequency of coupon m
    Discount Margin 0.40%
    Price ?

    CFS 0.875
    discunt rate 0.825%
    Period 4
    Price using PV ₹100.20

    Using NPV ₹100.20


    Term CFS PV of CFs
    1 0.875 0.86784
    2 0.875 0.86074
    3 0.875 0.8537
    4 100.9 97.6137
    100.196
    o-year FRN pays MRR plus 0.50%.
    s 1.25%.
    QM = 0.0050, and m = 2. ignoring
    yield spread required by investors is 40 bps over the refe

    e of the bond

    100

    RR +0.50%
    2
    over the reference rate;
    •Suppose that a five-year FRN pays M
    •The price of the floater is 95.50 per 1
    •below par value because of a downgr
    •Calculate Discounted Margin DM

    Given
    Term 5Year
    Quarterly payment Period
    FV / RV 100
    Ref rate (MRR) 0.011
    Coupon rate MRR + 0.75%
    Quoted Margin 0.75%
    Coupon rate 1.85%
    Price at a discount 95.5
    Discounted Margin 1.7181%
    Price s
    FRN pays MRR plus 0.75% on a quarterly basis. Curre
    s 95.50 per 100 of par value, a discount
    of a downgrade in the issuer’s credit rating.
    argin DM

    20
    Use goal seek
    basis. Currently, MRR is 1.10%.

    You might also like