Mastering Financial Modelling in Microsoft Excel 3rd edn, 3rd Edition

14

Bonds

Introduction

Cash flows

Yield measures

Duration

Portfolio results

Summary

INTRODUCTION

Bonds are securities issued by government or creditworthy companies which pay interest or coupons at regular intervals. The principal amount lent on commencement is repayable on expiry while interest is repayable during the period. Loans normally are repayable with interest and principal during the loan period so bonds have a different profile of cash flows. A typical corporate bond is issued for periods between three and 30 years, while government bonds can be issued for longer periods. Bonds are transferable and their value depends on current interest rates. This chapter models bonds, pricing, typical return and risk measures in a file called ...