bondPriceDefCoupon {bondAnalyst} R Documentation

## Calculates the Price of Bond making Deficient Coupon Payments.

### Description

Calculates the Price of Bond making Deficient Coupon Payments.

### Usage

bondPriceDefCoupon(parValue, couponDeficiency, times, r)


### Arguments

 parValue A number. couponDeficiency A vector. times A vector. r A number.

### Details

When the coupon rate is less than the market discount rate, the bond is priced at a discount below par value. This is so because the price of a fixed-rate bond, relative to par value, depends on the relationship of the coupon rate to the market discount rate. For this reason, when the coupon rate is less than the market discount rate, the bond is priced at a discount below par value (Adams & Smith, 2019). If a bond pays coupons at 3 percent, whereas the the market discount rate is 5 percent, then this bond has coupon deficiency of 2 percent. So for computing the price of a bond with Coupon Deficiency, present Value of the deficient Coupon Payments is computed and then is deducted from the Par Value of the bond. Of course such bond gets priced at a discount and trades below the par value for paying coupon rate less than that of market discount rate. Suppose present value of Deficient Coupon Payments comes out to be -8.425 then of the price this bond will be 91.575 (= 100 – 8.425). In view of this, the method bondPriceDefCoupon() is developed to compute the Price of Bond making Deficient Coupon Payments. So, bondPriceDefCoupon() gives the Price of Bond making Deficient Coupon Payments for values passed to its four arguments. Here parValue represent the Maturity Value, couponDeficiency is the vector that has dollar values of Deficient Coupon Payments for periods till maturity, 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.

### Value

Input values to four arguments parValue, couponDeficiency , times and r.

### Author(s)

MaheshP Kumar, maheshparamjitkumar@gmail.com

### 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

bondPriceDefCoupon(parValue=100,couponDeficiency=c(-2,-2,-2,-2,-2), times=c(1,2,3,4,5), r= 0.06)
bondPriceDefCoupon(parValue=100,couponDeficiency=c(-2,-2,-2,-2,-2), times=c(1:5), r= 0.06)
bondPriceDefCoupon(parValue=100,couponDeficiency=c(rep(-2,5)), times=c(1:5), r= 0.06)
bondPriceDefCoupon(100,c(rep(-2,5)), c(1:5), 0.06)


[Package bondAnalyst version 1.0.1 Index]