INVESTMENT ANALYSIS
TYPES OF YIELD OR RETURN FROM INVESTMENT IN BOND ISSUED
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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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