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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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