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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
  1. Set up the problem

    25 basis points is 0.25 percentage points. The coupon becomes 7.75%.

  2. Work through the numbers

    Annual extra interest = ₹200 × 0.0025 = ₹0.50 crore.

  3. 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.

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