Internal Registered Stock

Unlike TBs, IRS are capital market instruments issued for longer maturities i.e., for a period exceeding 12 months and holders may earn half-yearly interest (coupon). Currently the Government of the Republic of Namibia has issued GC05, GC07, GC10, GC15 and GC24 maturing in 2005, 2007, 2010, 2015 and 2024 respectively. Allotments are made in an ascending order of yields with lowest yields receiving a priority. The Bank acts as an agent for the Government for the issue and redemption of IRS and maintains an electronic register that records details of each stockholder, and the amount of stock held by each holder. IRS like TBs may be traded between parties at prices negotiated between them. Like TBs, the holder may transfer IRS to any other person upon completion of a relevant transfer form issued by the Bank. IRS are listed on the Namibian Stock Exchange (NSX) where secondary trading can take place. Interested parties can, thus, opt to buy and/or sell bonds in issue on the NSX through qualified and registered stockbrokers. Trading in Government stock can also take place over-the-counter, that is, legal trading outside the formal market such as the NSX. In other words, trading in Government Stocks can take place between and amongst individuals and/or institutions.

The Government issues Prospectuses in which the terms and conditions of proposed issues are stipulated. Details of the proposed issue are published in advance on the Bank’s website, local newspapers, Reuters System (BONNA2) and sent via e-mail. Tender forms signed under a power of attorney must also be accompanied by the original power of attorney for noting. On tenders, yields for IRS must be quoted at most to the nearest 5 decimal places.

5.1 Example: price calculation for bonds with more than six months to redemption

Suppose the Government issued a Prospectus inviting tenders for GC10 (a bond with original maturity of 10 years) with the following terms:

Issue date = 10 April 2000
Settlement date = 10 April 2000
Redemption date = 15 January 2010
Coupon = 12% per annum (or 6% semi-annually)
Interest dates = 15 January and 15 July

A bidder with N$100, wishes to invest in the above-mentioned Stock and expects a yield of 13.50%. What price must the bidder quote on a tender form? Bidders are required to quote the all-in-price. To arrive at the required price, bidders can use the following general formula adopted from the Bond Exchange of South Africa:

Where: