Comparison of Insured vs. Uninsured
By Robert Caplan
Jun 8, 2006, 15:26
This value is calculated by comparing the initial purchase price of the insured
maturities to the present value of the uninsured debt service for that
maturity. If the initial purchase
price for a maturity in the insured scenario is greater than the present value
of all future debt service payments for that maturity in the uninsured scenario,
this means the value of insuring is negative and insuring the bonds would give a
greater benefit to the insurance company than to the bond issuer. Munex calculates this value of insuring
for each maturity in an series, the sum of which gives you a measure of the net
value of insuring a series of bonds.
The value of insuring maturity N is calculated as:
V = (A-B) where
A = Initial cost of insured maturity N = issuance value +
accrued interest - insurance cost.
B = PV of uninsured debt service for maturity N, i.e. discounted
back to the settlement date at the uninsured yield to maturity. Munex
calculates V for each maturity N in the issue, and computes the overall value of
insuring as ∑V[N] for N = 1,2,…X = Final maturity.
The Comparison of Insured vs. Uninsured to Call report will give you a
similar calculation as above, except the uninsured D/S to maturity payments are
discounted back at the uninsured yield to
call. If you were to discount the uninsured D/S to call at the yield to
call, the result would be identical to the Comparison of Insured vs. Uninsured
(to Maturity) because you would get the same present value(discounting d/s to
maturity by the YTM = discounting d/s to call by the YTC).
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