A Note on Investment in Bonds - Calculation of YTM

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Case Details:

Case Code : FINC057
Case Length : 17 Pages
Period : 2007-08
Pub. Date : 2009
Teaching Note :Not Available
Organization : NABARD / ICICI Bank / IDBI Bank
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

Risk Profile of the Bonds

Both these bonds are rated AAA. While NABARD's Bhavishya Nirman bond is rated AAA by CRISIL AND CARE, ICICI's Regular Income Bond is rated AAA by CARE and ICRA...

Liquidity

On the liquidity front, we can say that ICICI Bank's regular income bond is more liquid than NABARD's Bhavishya Nirman Bond. Even though both the bonds (Bhavishya Nirman Bond and ICICI Regular Income Bond) will be listed on Mumbai Stock Exchange to provide liquidity, it is easy for small investors to sell their investments in ICICI bonds as ICICI Bank has appointed market makers to provide a buy/sell quote on the stock exchanges to provide liquidity...

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Conclusion

The decision on which of these bonds to invest in depend on the expected rate of return, tax implications and liquidity requirements of the investor. If an investor belongs to the zero tax bracket, he/she can invest in ICICI Regular Income Bonds as they give him/her more returns compared to NABARD's Bhavishya Nirman Bonds...

Exhibits

Exhibit I: CRISIL's Credit Rating Scales
Exhibit II: CARE's Credit Rating Scales
Exhibit III: ICRA's Credit Rating Scales

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