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Formula Sheet - Understanding Interest Rates — Formulas...

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Unformatted text preview: Understanding Interest Rates — Formulas to remember 1. For any type of bond — to find the Yield to Maturity: Set Price = discounted payoff Solve for i 2. Current yield = yearly coupon payment / price of bond The current yield is close to yield to maturity when its a long-term bond, 20+ years (the longer the closer) and/or when price of bond is close to the face value 3. Coupon rate = yearly coupon payment / face value 4. Return on a bond held one year: Current yield + rate of capital gain ‘7 .— fg... «r l «I. vl Pt 1 ‘ 'Pt ...
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