Bond Calculator Help
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Introduction
Help is available on the following topics:
Government Bonds
Government bonds are financial instruments sold by governments to investors
to raise money for public spending. In return for purchasing a bond, the
investor is guaranteed to a receive a periodic (usually annual or semi-annual)
coupon payment over the life of the bond and a larger redemption payment
when the bond matures. Bond prices and coupon amounts are expressed as
a percentage of the bond's notional face value, so an investor holding
a 1000000 DM German Government Bond with a coupon of 5% and a 100% redemption
would receive an annual coupon payment of 50000 DM and a redemption payment
of 1000000 DM. If the investor had purchased the bond for a price of 98
then he would have paid 980000 DM for it. Note that nearly all government
bonds redeem at 100% of notional, so that fact has been treated as an assumption
in the Bond Calculator.
Bond Type
Although the basic mechanics of bond calculations
remain the same everywhere, each country's bond market uses slightly different
accountancy conventions. For instance, the number of coupon payments per
annum and the accrual basis (the manner of which the number of years between
two dates is calculated) will vary from country to country. When a new
'Bond Type' is chosen, the 'Frequency', 'Accrual Basis' and 'Repo
Basis' fields change to display the appropriate conventions for that market.
Maturity Date
The Maturity Date is the date upon which the bond matures and the
redemption payment is made. By default, this date is one year from today.
The date should be entered in a format appropriate to your browser's locale.
Coupon
The Coupon is the percentage of the bond's notional value that is
paid to the investor each year. For instance, the owner of a £1000000
UK Gilt with a 5% coupon will receive £50000 every year over the
life of the bond, divided between two £25000 payments.
First Accrual
Date
The First Accrual Date is the date upon which the bond first starts
to accrue interest. Note that this date is only relevant if the bond is
yet to pay its first coupon. By default, this date precedes today by two
years. The date should be entered in a format appropriate to your browser's
locale.
First Coupon Date
Some bonds are issued with an irregular first coupon, i.e. the period is
either shorter or longer than one would normally expect. In this case,
both the First Accrual Date and the First Coupon Date must be specified.
The dates should be entered in a format appropriate to your browser's locale.
Settlement Date
The Settlement Date is the date from which the purchaser of a bond
is considered to be the bond's owner. There is normally a short gap between
purchase and the onset of legal ownership to allow for the clearance of
payments. The date should be entered in a format appropriate to your browser's
locale.
Price
Price is the clean price of the bond (i.e. ignoring accrued interest)
expressed as a percentage of the bond's notional face value. Its default
value is 100.
Accrued Interest
If a bond is purchased part-way between two coupon payments then the new
owner must compensate the previous owner for the portion of the current
coupon that he has already accrued. This amount is known as the Accrued
Interest on the bond.
Dirty Price
The net price that an investor must pay for a bond, i.e. the bond's clean
price plus its accrued interest, is known as the Dirty Price.
Yield
A bond's Yield is the compounded interest rate that a bank account
would have to pay if investing an amount equal to the bond's dirty price
in the bank were to be equally attractive as purchasing the bond and reinvesting
its coupons in the bank.
True Yield
A bond's True Yield is calculated exactly as its yield, except that
coupons paid on bad dates (weekends or holidays) are considered to be paid
on the next good working day. The Bond Calculator has no lists of public
holidays, so only weekends are considered bad dates for the purposes of
this calculation.
Duration
A bond's Duration is the number of years from settlement at which
the bond's proceeds may be considered to have been received.
Modified Duration
A bond's Modified Duration is its percentage decrease in price given
a unit increase in yield.
PVBP
A bond's PVBP is its absolute decrease in price given a unit increase
in yield.
Convexity
A bond's Convexity is its change in PVBP given a unit increase in
yield; it indicates the degree of curvature in the price/yield graph.
Frequency
A bond's Frequency is the number of coupons it pays per annum.
Accrual Basis
A bond's Accrual Basis indicates how the number of years between
two dates is calculated for accrued interest purposes. The numerator of
the expression indicates how the number of days between the dates is calculated;
this number is then divided by the denominator to give a number of years.
Repo Basis
A bond's Repo Basis indicates how the number of years between two
dates is calculated for repo purposes. The numerator of the expression
indicates how the number of days between the dates is calculated; this
number is then divided by the denominator to give a number of years.
Forward Date
The Forward Date is the forward settlement date to be used in forward
pricing calculations. The date should be entered in a format appropriate
to your browser's locale.
Repo Rate
The Repo Rate is the rate at which funds can be borrowed to any
future date when the bond is offered as security.
Reinvestment Income
The Reinvestment Income is the amount received by the bond's owner
in coupon payments between spot settlement and forward settlement. These
coupons are assumed to be reinvested from receipt until the forward date
at the repo rate.
Forward Price
The bond's Forward Price is its clean price on the forward date.
Coupon Dates
Coupon Dates can be displayed either 'Unadjusted' (the dates used
for accrued interest calculations) or 'Adjusted' (bumped on to the next
good working date).