FIXED
INCOME SECURITIES 9-19
Eurobonds
Issued in an
international
market
Eurobonds represent another large group of fixed income securities.
A Eurobond is a generic term used to describe a debt instrument
issued by a company in an international market that is outside any
domestic regulations.
Annual
coupon
payments
Eurobonds typically make annual coupon payments to the investor
generally made on a 365-day year basis. We can calculate the price of
a Eurobond, or any annual coupon paying instrument, with this
formula:
T
P =
å
C
+
F
a
i = 1
(1 + Y)
i
(1 + Y)
T
Where:
P
=
Current price of the bond
C
=
Annual coupon payment
Y
=
Annual yield to maturity rate (discount rate)
F
=
Face value of the bond
T
=
Number of years until maturity
å
=
Sum of the series
i = 1
=
Series begins at first possible occurence
Remember, the price of bonds may be found using your financial
calculator -- it is not necessary to memorize all of these pricing
formulas. The important point of this section is to identify the
proper variables to enter into your calculator so that you can
compute the answer. The formulas are used as reference points to
enhance your understanding of the concepts.
Use the bond functions of your calculator to solve for the price of
the Eurobond described in the next example.
Example
What is the price of a 7-year Eurobond with $10,000 par value,
coupon rate of 7.8%, and priced to yield 6.4%?