Equations

The following equations become handy if a financial calculator is not available:

Floating rate securities:
Coupon Rate = Reference Rate + Quoted Margin

Deleveraged Floaters
Coupon Rate = b x (Reference Rate) + Quoted Margin

Inverse Floaters
Coupon Rate= K-L x (Reference Rate)

Effective Duration
DE=P- - P+ / 2P0∆r

Application of Effective Duration
%Change in Price of Bond=-DE∆r

Bonds with Embedded Options
PCB=PNCB-C
PPB=PNPB+p

Tax Equivalent Yield
Tax Equivalent Yield=Tax-free Bond Yield/1-Marginal Income Tax Rate

After Tax Yield=Pretax Yield (1-Marginak Tax Rate)

Determining the Discount Rate
Discounting Rate for the Bond=Yield to Maturity=Risk Free Treasury Yield+Nominal Spread