HoldingPeriodReturnAndYieldToMaturityForZero-Coupon... -...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Holding Period Return and Yield to Maturity for Zero-Coupon Bonds 1 Notation: F Face value of a bond P Price of a bond V Value of a security T Years to maturity t Years until you sell the bond 1. The yield to maturity (assuming annual compounding) is defined as YTM = F P ¶ 1 /T- 1 Because the final payment F is known with certainty (the U.S. government will not default), the yield to maturity is known with certainty. P is the price “today”. 2. Recall that for any security, the holding period return is HPR = V t V ¶ 1 /t- 1 . where V is the value at which you bought the security, and t is the number of years you held the security. For a zero-coupon bond, the value equals the price (because there are no interme- diate cash flows). From the definition above, HPR = P t P ¶ 1 /t- 1 How are holding period returns and yield to maturities related? It matters whether the bond is held to maturity, or sold before it reaches maturity....
View Full Document

This document was uploaded on 09/24/2009.

Page1 / 4

HoldingPeriodReturnAndYieldToMaturityForZero-Coupon... -...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online