NABARD CASE STUDY IN FM

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    11-Jul-2015

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  • *Bond Issue ByNABARD

  • National Bank for Agriculture and Rural Development(NABARD) is an apex development bank in India having headquarters based inMumbaiand 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 foragriculture and other economic activities in rural areas in India".. NABARD also reaches out to allied economies and supports and promotes integrated development.

    *History of NABARD

  • Role of NABARD It provides investment and production credit for promoting the various developmental activities in rural areasIt 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.Undertakesmonitoring 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.

  • *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.

  • *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.

  • *Bond ValuationBonds 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.

  • *In yr 2009

    Name of the Bond Bhavishya Nirman BondIssue Price - 8250Type of Security Zero Coupon BondFace Value - 20000Term to Maturity -10 yrsIn 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 21450At 9% =19556 20000=444 10%=21450 1894 Now 444/1894=.2344 So. YTM =9.2344*Case Solution

  • *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:

    Disc factorFVIFCFPV6%1.7908950017012.67%1.9672950018688.48%2.1589950020509.55

  • *3. No. of bonds allotted to jessica in 2009 issue =1000No. of years left to maturity = 9 yrs

    Value of bond= 1000 * 20000=20000000Fair price = 20000000(PVIF9.25%, 9) = 20000000*0.46043 = 9208600.

  • *Thank You