121 questions

121 questions - Current yield = coupon amount/current price...

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Current yield = coupon amount/current price YTM is a more advanced yield calculation that shows the total return you will receive if you hold the bond to maturity. It equals all the interest payments you will receive (and assumes that you will reinvest the interest payment at the same rate as the current yield on the bond) plus any gain (if you purchased at a discount) or loss (if you purchased at a premium). Read more: http://www.investopedia.com/university/bonds/bonds3.asp#ixzz1lA0L BPx2 Example Consider a 30-year zero-coupon bond with a face value of $100. If the bond is priced at an annual YTM of 10%, it will cost $5.73 today (the present value of this cash flow, 100/ (1.1) 30 = 5.73). Over the coming 30 years, the price will advance to $100, and the annualized return will be 10%. What happens in the meantime? Suppose that over the first 10 years of the holding period, interest rates decline, and the yield-to-maturity on the bond falls to 7%. With 20 years remaining to maturity, the price of the bond will be 100/1.07 20 , or $25.84. Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the yield-
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This note was uploaded on 02/15/2012 for the course AFM 121 taught by Professor Mr.tom during the Winter '11 term at Waterloo.

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121 questions - Current yield = coupon amount/current price...

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