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Tuesday, 7 April 2015

INVESTMENT ANALYSIS (TYPES OF YIELD OR RETURN FROMM INVESTMENT IN BOND ISSUED)

INVESTMENT ANALYSIS

TYPES OF YIELD OR RETURN FROM INVESTMENT IN BOND ISSUED

For comments, observations, questions and answers, email theotherwomaninmarriage@gmail.com  

There are four kinds of yield or return from investment in bond issued that you must know- you will be asked on the judgment day hehehehe;

1.      Annual Coupon or Annual Interest Payment

2.      Current Yield

3.      Yield To Maturity

4.      Yield To Call

ANNUAL COUPON: It is the rate of return on the nominal value, par value or value of the bond which is generally a fixed rate throughout the tenure of the instrument.  

C = I (FCV)
Where:            C =       Annual Coupon or Annual Interest Payment
i=         Interest on the Bond
FCV      =          Face value of the Bond

CURRENT YIELD: It is the rate of return on the actual investment of the bond.
       
        
Y =       C
            Po

Where:            Y          =          Current Yield on the Bond Issued
                        C          =          Annual Coupon
                        Po         =          Market Value or Price of the Bond            

YIELD TO MATURITY: It is the rate of return on the nominal or face value of the bond, adjusted for the amortization of the premium (paid) or then discount saved at the time of purchase of the bond.

YIELD TO CALL:  The yield to call is the rate of return that an investor would earn if he bought a callable bond at its current market price and held it until the call date, given that the bond was called on the call date.  It represents the discount rate which equates the discounted value of a bond’s future cash flows to its current market price given that the bond is called on the call date.


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