NABARD CASE STUDY IN FM
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Transcript of NABARD CASE STUDY IN FM
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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