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Price the coupon consequence of a missed target
Price a sustainability-linked coupon step · Fictional case
The situation
A ₹200 crore bond pays a 7.5% annual coupon. Missing a KPI adds 25 basis points to each of the final two annual coupons. Ignore discounting for total extra cash.
Your task
How much extra interest does a miss cost?
Reveal step-by-step solution
Set up the problem
25 basis points is 0.25 percentage points. The coupon becomes 7.75%.
Work through the numbers
Annual extra interest = ₹200 × 0.0025 = ₹0.50 crore.
Interpret the result
The final two payments cost ₹1 crore extra in nominal cash. Check observation dates and verification terms before applying the step-up.
What to remember
Read the trigger, adjustment size and affected payment dates in the bond terms.