How to calculate Bond Sensitivity Macaulay’s Duration Modified Duration or Volatility and Intrinsic Value?
How to calculate Bond Sensitivity, Macaulay’s Duration, Modified Duration or Volatility and Intrinsic Value? What is Intrinsic Value of Bond? Present value of bond calculated using expected interest rate of return is called Intrinsic value of Bond. Formula for calculating Bond's Intrinsic Value: Intrinsic value = ∑(Future Cash Flow x PVF) =∑PV *PVF = Present value factor and PV= Present Value. Example 1: No 1. A conventional Bond having following parameter- Face value ₹1000, Redeemable Value ₹1200, Remaining Life 5 Years and Coupon Rate 10%. Find- Intrinsic value when expected rate of Return is 12%. Solution: Expected rate of Return (r)=0.12, PV factor = 1/(1+r) n . Years(n) Future Cash Flow PV Factor PV 1 100 0.8928 89.28 2 100 0.7971 79.71 3 100 0.7117 71.17 4 100 0.6355 63.55 5 100 0.5674 56.74 5 1200 0.5674 680.88 Intrinsic Value= 1041.33 What is Bond Sensitivity? Interest rate sensitivity is a measure of how mu...