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ISMA Formula Example - Price

Description

Consider a 10-year Finnish Government Bond (Markkas) trading at a yield of 6.00% with a coupon rate of 7.00%, a dated date of 1 January 2000, a first coupon date of 25 March 2000, a maturity date of 25 March 2010, and a face value of $1,000,000. What is the PPH of this bond assuming a settlement date of 1 June 2001?

 

 

Function Specification

=oBondFI_Price(0.06, "1/6/01", "1/1/00", "25/3/00", , "25/3/10", 1000000, 0.07, 0)

This bond had a stub first period (1/1/2000 - 25/3/2000).

 

 

Solution

Referring to the ISMA formula, we get the following inputs:

r1 = 238 days (25/1/02 - 1/6/01)
r2 = 0 days (no odd final period)
s = 365 ('Actual' day count convention)
d1 = $7.00 (coupon per $100 Face Value)
d2 = $7.00 (coupon per $100 Face Value)
c = $7.00 (coupon per $100 Face Value)
c* = $0.00
h = 1 (annual coupons)
n = 8 (full coupon periods remaining)
v = 0.9434 (1/(1.06))
y = 6.00%

 

 

Using these inputs, the ISMA formula becomes:

Equation Template

 

 

Outputs

As the bond has a face value of $1,000,000, and the output flag has been set to 0 (see Finnish Bond Price Function) , the following outputs are produced.

Yield

0.06000

Clean Price

1,066,632.9250

Accrued Interest

13,041.0959

Dirty Price

1,079,674.0209

Macaulay Duration

6.8581

Modified Duration

6.4699

Convexity

54.8037

Price Value of a Basis Point

698.5426

 

 

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