Lesson Plan
I. OBJECTIVES At the end of the lesson, learners should be able to:
calculate a bond’s price given a market discount rate;
identify the relationships among a bond’s price, coupon rate,
maturity, and market discount rate (yield-to-maturity);
define spot rates and calculate the price of a bond using spot
rates;
describe and calculate the flat price, accrued interest, and the
full price of a bond;
describe matrix pricing;
calculate the annual yield on a bond for varying compounding
periods in a year; and
calculate and interpret yield measures for fixed-rate bonds
II. SUBJECTJECT A. Topic: Valuation of Fixed Income Instruments (part 1)
MATTER B. Materials: Powerpoint presentation
C. Reference: Fixed Income Analysis textbook 4th edition by
Adams and Smith
D. Value infused: Awareness, Interaction, and Understanding
III. LESSON SECTION 1: Introduction to Fixed Income Valuation
CONTENT SECTION 2: Bond Prices and the Time Value of Money
Bond pricing with a market discount rate
Yield-to-maturity
Relationships between the bond price and bond characteristics
Pricing bond with spot rates
SECTION 3: PRICES AND YIELDS: CONVENTIONS FOR QUOTES
AND
CALCULATIONS
Flat Price, Accrued Interest, and the Full Price
Matrix Pricing
Annual Yields for Varying Compounding Periods in the Year
Yield Measures for Fixed-Rate Bonds
IV. TEACHING o Greetings and Introducing the student teachers name and topic
PROCEDURES/ o Checking of the attendance
STRATEGY o Evaluation
The Student teacher will give a quiz and activity using a
Google forms.
The quiz is only 10 items consisting of 8 multiple choice
and 2 true/false. The activity is 5 items—where the
learners will choose the correct answer to the problem
and attached their solution using the Google forms.
Questions of the quiz:
When the coupon rate is greater than the market discount rate, the
bond is priced at a?
*
A.) Par Valu
B.) Discount
C.) Premium
D.) Book Va
When the coupon rate is equal to the market discount rate, the bond
is priced at?
*
A.) Par Valu
B.) Discount
C.) Premium
D.) Book Va
Assuming, a five-year bond pays a 7% annual coupon and the market
discount rate is 10%, the bond would trade at?
*
A.) Par Valu
B.) Discount
C.) Premium
D.) Book Va
It is the internal rate of return on the cash flows.
*
A.) Market D
B.) Debt Rat
C.) Receivab
D.) Yield-to-
It is an estimation process to find the market price of a not-so
frequently traded bond based on the prices of comparable bonds with
similar times to maturity, type of issuer, coupon rates, and credit
quality.
*
A.) Matrix pr
B.) Pricing b
C.) Bond pri
D.) Discount
It is the number of compounding periods in a year, or number of
coupon payments made in a year.
*
Periodicity
Perpetual
Periodic
Semi-annua
It is the yield to maturity using a 30/360 day convention assuming
payments are made on scheduled dates, even if the payment fell on a
weekend or a holiday.
*
Yield-to-Mat
Current Yiel
Yield-to-call
Street Conv
This yield to maturity which is calculated using the actual day count
convention is called True yield.
*
False
True
Coupon rate which is greater than the market discount rate is called a
Discount Bond
*
False
True
Coupon rate that is equal to its market discount rate is called a Par
bond.
*
True
False
Activity:
Assuming a coupon rate on a bond is 10% and the payment is made
once a year. The time to maturity is 3 years and the market discount
rate is 7%. Compute for the bond price per 200 of par value using the
formula provided below.
*
246.715 or 2
215.746 or 2
247.615 or 2
251.746 or 2
Write your solution in a clean sheet of paper for the question above.
And upload in the form below.
Also, indicate whether the bond is trading at discount, premium or par.