You are here:

Bonds/coupon Stripping

Advertisement

Expert: Doug Ingram - 7/21/2008


Question
Hi Doug

Have you got an example of "Coupon Stripping" zero coupon calculation in Excel? It would be great if you can help.

I'm just starting to think about different yield curves in Excel.

Thanks

Paresh

Answer
Actual - all bonds are priced this way.

Every cash flow is discounted to the point where the cash flow occurs

Even a coupon bond can be thought of as pricing all the strips.


100 paid in one year to yield 5% is:
100/(1+5%)^1  = 100/ (1.05) ^1 = 95.2381

100 paid in 2 years to yield 6^ is:
100/(1+6%)^2 = 88.999

100 paid in 18 months is 1.5 years so 100/(1.06)^1.5 gives you the price.

---------

A 3-year 10% coupon bond to yield 6% would be the sum off:
100/(1.06)^1
100/(1.06)^2
(1000+100)/(1.06)^3  

Bonds

All Answers

Ask Experts

Volunteer

Doug Ingram

Expertise

Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I write the Bond Market Review on behalf of Commerce Street Capital Management.

Experience

Trading and designing portfolio strategies since 1980.

Education/Credentials
Physics and Differential Mathematics

©2012 About.com, a part of The New York Times Company. All rights reserved.