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Appendix C: Extended Bond Calculations
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Calculation of Accrued Interest
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To calculate accrued interest:
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 1 |
Determine the number of months and days between settlement and the last coupon date.
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| 2 |
Multiply the number of months by 30 and add the result to the number of days.
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| 3 |
Calculate the accrued interest; use the total number of days (above) as time, the coupon rate as the interest, and the par value (in dollars) as the principal.
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Example: What is the accrued interest on a 5¾ % bond, having a par value of $1000, and maturing on July 15, 2001? The settlement date is September 11 , 1971.
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| | Enter: | | | See Displayed: | | |
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| 56 n 5.75 i 1000 PV PMT | | | | $ |
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accrued interest
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Callable Bonds
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Some bonds are redeemed prior to their stated maturity date and, in most
cases, an incentive is provided for the holder of such bonds. This
incentive is known as a call premium; it is merely a sum of money to be
paid in the future if the bond is called.
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The general procedure for determining a callable value is as follows:
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Determine bond price as usual.
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Find the present value of the premium only over the number of coupon periods; use the effective yield rate per period for the calculation.
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| 3 |
Add the present value of the premium to the price of the bond.
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Example: Find the value of a 3.25% bond to yield 2.40% on assumption of call at 104 in 7 years.
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| 1 |
Key in 7 (yrs), press SAVE .
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| 2 |
Key in 365 (days/yr), press × n.
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| 3 |
Key in 2.4 (yield), press i.
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| 4 |
Key in 3.25 (coupon), press PMT.
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| 5 |
Press PV (BOND), to obtain percentage price, (105.45).
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| 6 |
Press STO to store in constant storage location.
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