bondAnalyst (version 1.0.1)

pvExcessCoupon: Calculates the Present Value of the Excess Coupon Payment resulting due to higher Coupon Rate as compared the Market Discount Rate.

Description

Calculates the Present Value of the Excess Coupon Payment resulting due to higher Coupon Rate as compared the Market Discount Rate.

Usage

pvExcessCoupon(couponExcess, times, r)

Value

Input values to three arguments couponExcess , times and r.

Arguments

couponExcess

A vector.

times

A vector.

r

A number.

Author

MaheshP Kumar,

Details

For Example, a Bond is trading at a premium because the coupon rate per period (6 percent) is greater than the market discount rate per period (4 percent). The excess per period is the coupon rate minus market discount rate, times the par value: (0.06 – 0.04) × 100 = +2. The present value of excess is +7.260, discounted using the required yield per period (Adams & Smith, 2019). Based on this, the method pvExcessCoupon() is developed to compute the present value of excess Coupon Payments. So, pvExcessCoupon() gives the present value of excess Coupon Payments for values passed to its three arguments. Here, couponExcess represent the dollar value of excess coupon payment, times is a vector of number of years ranging from 1 to any specified number of years till maturity, and r is Market Discount Rate or Required Rate of return. The output is rounded off to three decimal places. The given examples show various ways in which the arguments can be passed to pvExcessCoupon().

References

Adams,J.F. & Smith,D.J.(2019). Introduction to fixed-income valuation. In CFA Program Curriculum 2020 Level I Volumes 1-6. (Vol. 5, pp. 107-151). Wiley Professional Development (P&T). ISBN 9781119593577, https://bookshelf.vitalsource.com/books/9781119593577

Examples

pvExcessCoupon(couponExcess=c(2,2,2,2), times=c(1,2,3,4), r= 0.04)
pvExcessCoupon(couponExcess=c(2,2,2,2), times=c(1:4), r= 0.04)
pvExcessCoupon(couponExcess=c(rep(2,4)), times=c(1:4), r= 0.04)
pvExcessCoupon(c(rep(2,4)), c(1:4), 0.04)