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Bond Issue By

“NABARD”

National Bank for Agriculture and Rural Development (NABARD) is

an apex development bank in India having headquarters based

in Mumbai and other branches are all over the country.

It was established on 12 July 1982 by a special act by the parliament

and its main focus was to uplift rural India by increasing the credit

flow for elevation of agriculture & rural non farm sector and

completed its 25 years on 12 July 2007. It has been accredited with

"matters concerning policy, planning and operations in the field of

credit for agriculture and other economic activities in rural areas in

India".. NABARD also reaches out to allied economies and supports

and promotes integrated development.2

History of NABARD

Role of NABARD

It provides investment and production credit for promoting the various developmental activities in rural areas

It regulates the institution which provides financial help to the rural economy.

The institutions which help the rural economy, NABARD helps to develop.

NABARD refinances the financial institutions which finances the rural sector.

Undertakes monitoring and evaluation of projects refinanced by it.

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Par or Face Value - The amount of money that is paid to the bondholders at

maturity.

Coupon Rate - The coupon rate, which is generally fixed, determines the

periodic coupon or interest payments. It is expressed as a percentage of the bond's face value. It also represents the interest cost of the bond to the issuer.

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Coupon Payments - The coupon payments represent the periodic interest payments

from the bond issuer to the bondholder. The annual coupon payment is calculated by multiplying the coupon rate by the bond's face value. Since most bonds pay interest semiannually, generally one half of the annual coupon is paid to the bondholders every six months.

Maturity Date - The maturity date represents the date on which the bond

matures, i.e., the date on which the face value is repaid. The last coupon payment is also paid on the maturity date.

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Yield to Maturity -

The rate of return that an investor would earn if he bought the bond at its current market price and held it until maturity. Alternatively, it represents the discount rate which equates the discounted value of a bond's future cash flows to its current market price.

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Bond Valuation

Bonds are valued using time value of money concepts.

Their coupon, or interest, payments are treated like an equal cash flow stream (annuity).

Their face value is treated like a lump sum.

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In yr 2009

Name of the Bond – Bhavishya Nirman Bond

Issue Price - 8250

Type of Security – Zero Coupon Bond

Face Value - 20000

Term to Maturity -10 yrs

In year 2010

Issue price -9500

Terms of the issue of zero coupon bond of the case:

(Q1) yield to maturity for the investor in 2009 issue:

DISC RATE FVIF CF PV

8% 2.16 8250 17820

9% 2.37 8250 19553

10% 2.60 8250 21450

At 9% =19556 – 20000=444

10%=21450

1894 Now 444/1894=.2344

So. YTM =9.23449

Case Solution

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Disc

factor

FVIF CF PV

6% 1.7908 9500 17012.6

7% 1.9672 9500 18688.4

8% 2.1589 9500 20509.55

At 7%= 18688.4 -20000=1311.6

8%= 20509.55

1821.15 Now 1311.6/1821.15=0.720

So, YTM= 7.720

Q2. yield to maturity for the investor in 2010 issue:

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3. No. of bonds allotted to jessica in 2009

issue =1000

No. of years left to maturity = 9 yrs

Value of bond= 1000 * 20000=20000000

Fair price = 20000000(PVIF9.25%, 9)

= 20000000*0.46043

= 9208600.

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Thank You