3233b - INTEREST RATE PROBLEM SET YIELD FORMULAS: There are...

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INTEREST RATE PROBLEM SET YIELD FORMULAS : There are a number of different ways of calculating different yields. A few of these formulas are shown below. 1. Current yield of a bond : annual coupon interest in dollars = C Current yield = Current Price P 2. Yield to maturity of a bond (r) : a. Approximation formula: Par Value - Current Price coupon interest + n___________ Current Price + Par Value 2 where n is the number of years to maturity and PV = par value b. Exact formula: C 1 + C 2 + . . . . + C n + PV Price= (l + r) (l + r) 2 (l + r) n Solve for r by trial and error. 3. Treasury bill yields : a. Discount yield (d): d= 360 100 - Price n 100 where n is number of days to maturity; price is expressed in dollars per $100 of par value or face amount. b. Equivalent bond or coupon yield (i): I = 365 100 - Price n Price 4. Yield compounding : a. Realized yield = (l + r/m) m - 1 where r = stated interest rate per year, m = number of times interest is compounded per year. b. For continuous compounding:
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Realized yield = e r - 1 5. Stock : a. Constant Growth Model P o = D 1 K e - g b. General Dividend Model P o = Σ D t t=1 (1 + K) t m c. 2 Period Growth Model Σ D o (1 + g 1 ) t + 1 D m+1 t = 1 (1 + K e ) t (1 + K e ) m K e - g 2
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ASSIGNMENT: INTEREST RATES This assignment explores several aspects of interest rates including (1) yield calculations, (2) yield differentials, and (3) the term structure of yields. Show all calculations. 1.
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This note was uploaded on 07/09/2011 for the course FIN 3233 taught by Professor Frohlich during the Spring '11 term at UNF.

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3233b - INTEREST RATE PROBLEM SET YIELD FORMULAS: There are...

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