Coupon rate (annually) 12.250% Nominal 600,000 Purchase price 127.54 Sale price 119.95 purchase date 19/09/2007 sale date 03/06/2008 maturity date 02/10/2017 Total loss is therefore 45,495 (in which one says 20,423 due to effective interest rate amortisation). How do I check this 20,423??? Help please. many thanks.
i get 8400 for amortization. First you need to compute the YTM on purchase, which I get to be 8.13%, using Yield Function in Excel… then you need to reprice this bond on sale date using that same Yield. I get bond price of 126.14. (127.54-126.14)/100 * 600,000 = 8,400. Loss on sale is (119.95-126.14)/100*600,000 = 37,140
Oh thanks so much, i also come to this 8,400. I’ve got no idea how my client comes to amortised price at sale date = 124.13 instead of 126.14 thus 20,423 amortisation!!! He must be wrong?! thanks again.
Love bond math, but can you go through how you got 126.14. I’m getting something ~10 cents higher.
The $0.10 difference goes to Michael and Samir’s bank account.
=PRICE(39602,43010,.1225,YIELD(39344,43010,.1225,127.54,100,1),100,1) returns 126.14 --check make sure coupon = 1, also make sure you are using MM/DD/YYYY if setup in excel ie (9/19/2007, 6/3/2008, 10/2/2017)
Hrm, I was trying to get the answer through TVM using my calc. I guess there is a slight difference in how it calculates the rate and NPV. Thanks