Hello! Could somebody please put me out of my misery and show me how to calculate the new bond price of a bond. this is with reference to reading 61, pg 272 of the Equity and Fixed Income Book. I’m sure it is very simple however, I really don’t know how to do it. I understand that if the coupon is smaller than the new yield we are going to see a small price, vice versa but when it comes to calculating the new bond price I am doing something very wrong. many thanks, Steph

I can’t really see the question here … You want to know the price of the bond using CR, maturity, YTM, and FV or using quotation? If you want to find the price using quotation, you will simply divide the quotation by 100 and multiply it by the par value. For the valuation of the bond, you will need to use texas plus and enter inputs that will compute to you the price (i.e. present value). Omar

page 272 deals with bond prices when the yield curve shifts. When the yield curve shifts the only variable changing is the YTM of the bond which will affect the PV of each cash flow. The coupon, maturity and par value stay the same. all you need to do is use your financial calculator and recalculate the price of the bond using the new YTM. regardless of the coupon size relative to the yield, if the yield goes up the price decreases and increases if the yield goes down.

Ok so say with example A. on page 272 there is an increase in the yield curve of +25 basis points. This is obviously going to see the new bond trade at a discount. In the first example we see the new bond price being 99.5312. How do we calculate this figure? I’m obviously putting in the TVM calculation incorrectly. N=2 i/y = .25 pv = compute (99.50186877) pmt = 0 fv = 100 If someone can please let me know what I’m doing wrong thanks - steph

my inputs were fv= -100, pmt = - 5,i/y = 5.25 , n = 2, cpt pv . answer = 99.53678889. still doesnt match. where am i going wrong?

Hi steph, You shouldn’t worry about calculating the value of the bond at this point - there will be an upcoming reading that will tell you how to do so exactly. The point of this example is to show you the difference in portfolio value if parallel shifts happens versus nonparallet shift (i.e. illustrate yield curve) Nevertheless, if you are so excited to know how to do the calculations from now and find the value (which is a good thing), then here is how it goes: N = 2 (true) I/Y = 5.25 (not 0.25 because you input the yeild NOT the increase in the yield) PMT = not zero of course! it is CR * Par value (5% * 100) = 5 FV = 100 CPT PV = 99.5312 and then you know how to find the value for par of $5,000,000 Omar

confused2010 Wrote: ------------------------------------------------------- > my inputs were > > fv= -100, pmt = - 5,i/y = 5.25 , n = 2, cpt pv . > answer = 99.53678889. still doesnt match. where am > i going wrong? just confirmed your answer; must be a typo in the textbook Omar

Omar you are tops! thanks for the answer and explaining it for me.

svgleeson Wrote: ------------------------------------------------------- > Omar you are tops! thanks for the answer and > explaining it for me. anytime

OK this is the most frustrating this about this forum. I know you guys are trying to help, but you’re not helping when your advice is incorrect. US bonds make payments semiannually. FV = -$100 PMT = -$2.50 (5/2) I/Y = 2.625 (5.25/2) N = 4 (2 * 2) CPT PV The books is correct. You guys are assuming annual coupon payments

beatthecfa Wrote: ------------------------------------------------------- > OK this is the most frustrating this about this > forum. I know you guys are trying to help, but > you’re not helping when your advice is incorrect. > > US bonds make payments semiannually. > > FV = -$100 > PMT = -$2.50 (5/2) > I/Y = 2.625 (5.25/2) > N = 4 (2 * 2) > CPT PV > > The books is correct. You guys are assuming annual > coupon payments totally forgot about it - I didn’t do valuation reading yet in the CFAI textbook … I based my response on my previous studies in school where NOT ALL bonds are based on semi-annual payment and the question usually used to state that payments are semiannual … That’s why it didnt cross my mind … Sorry for the mistake

No problem man… we all make mistakes. Let’s just wait a while next time before we declare that the CFA books are incorrect.

EDIT: sorry, wrong thread The practice question you are asking about is EXACTLY the same as practice problem 2, on page 428. The input is not like we all showed you above, because you have the same CF every year, so it goes like this: n = 5 pmt = -2309.75 i = 6 compute pv, pv = 9729.50725 this value checks when we add the present value of each cash flow: 2179.00943 + 2055.66928 + 1939.31064 + 1829.53835 + 1725.97956 = 9729.50725.