Calculating Money Type Asset Value

Bearer Bond with Coupons

Introduction

When Calculating how much an asset is worth, the generalised method would be: coupon (or interest rate) times the number of days since the latter of the issue date or the previous interim payment date, divided by the number of days in the year plus the nominal (or quantity). However even this simplified vew does have various caveats, one being that if the underlying security is denominated in EUR or USD (to name the most common) the number of days in the year is said to be 360, whereas if it is in GBP it would be 365 or 366. To complicate matters further, Bills are not issued with a coupon rate.

When compling accounting records sometimes the book value is also calculated for records. Book value is the book cost (the amount actually paid for the asset in the first place) appreciated/depreciated towards par, usually on a straight line basis, so that by maturity date the book value would be par plus, where applicable, the amount of accrued interest.

Generally assets would depreciate as they get to maturity date because they tend to have a higher value when they have longer to run because of higher potential risk factors, although this is a very simplified view. The term depreciation is used in the next section, although it could easily be appreciation.

Glossary of terms

 Term
 Definition
 Nom
Nominal or Quantity 
Today 
Valuation Date 
ToRun
Number of days between Today and maturity date
StartDate
Latter of the issue date and the previous interim payment date
Term 
Difference between StartDate and maturity date 
TermGone
Difference between StartDate and Today

Market Values

Bills
These are based on the nominal less the current market discount rate (yield)

Rate :- The current market yield
Basis : - 365 or 360 dependent on the issuing currency

Formula:-
Nom - (Rate * Nom * ToRun/Basis)

Deposits
Based on interest accrued to date plus nominal at par

Rate :- The interest rate at which the deposit was placed
Basis : - 365 or 360 dependent on the issuing currency

Formula:-
Nom + (Rate * Nom * TermGone/Basis)

Certificates of Deposit (CD's)

MRate :- The Current market yield for this CD
IRate :- The Issue rate for this CD
Basis : - 365 or 360 dependent on the issuing currency

Formula:-
{ Nom + (Nom * Term * IRate/Basis) } / [ (ToRun * MRate/Basis) + 1]

Stocks and Bonds
Based on the current clean market price (usually quoted per 100 nominal) plus accrued interest.

MPrice :- The Current (clean) market price (based on 100 nominal)
AInt :- The interest accrued to the valuation point

Formula:-
AInt + ( Nom * MPrice / 100)

Note: The actual calculation method used for obtain the amount of accrued interest is wholly dependent upon the issuing particulars of each individual stock, although they tend to follow one of several different industry standards. (These are detailed in another hub in the link below)

Book Value Calculations

Bills
Rate:- The percentage discount rate received when the asset was purchased
Basis :- 365 or 360 dependent on the issuing currency

Formula : Nom - (Rate * Nom * ToRun / Basis)

Deposits
Rate:- The Interest rate at which the deposit was placed
Basis:- 365 or 360 dependent on the currency of the deposit

Formula:
Nom + (Rate * Nom * TermGone/Basis)

Certificates of Deposit (CD)
Basis :- 365 or 360 dependent on the issuing currency
PYield :- the percentage yield at which the asset was purchased
PCost :- The amount of cash paid for the asset (see note below)
IRate :- The issuing Rate

Formula :-
PCost * (1 + [ TermGone * PYield / Basis ] )

Note: If the CD was bought after the issue date (i.e. a portion of the purchase cash would be related to interest accrued to the purchase date) AND there has been a subsequent interim payment, then PCost would be adjusted so it only relates to the cost of the nominal purchased by taking off the amount of interest accrued at puchase (where TermGone=TermGone at purchase date) thus :-

PCost = CashPaid - (Nom * IRate * TermGone / Basis)

Stocks and Bonds
The book value is derived form two calculations, the first part relates to the depreciation of the amount paid for the stock and the second part is the amount of interest accrued to the valuation point. As mentioned above, there are several industry standard ways of calculating the amount of accrued interest and the listing particulars of each stock determine which standard is used. These are covered in a separate hub (see links below).

PPrice :- The clean purchase price (based on price per 100)
AInt :- Interest Accrued to valuation point
Term:- Difference between purchase date and maturity date
TermGone :- Difference between purchase date and valuation date

Formula:
AInt + Nom * {PPrice + [ (100 - PPrice) * TermGone/Term] } / 100

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