Approximate yield to maturity equation
[DOC File]Solutions to Chapter 1
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2. When the bond is selling at a discount, $970 in this case, the yield to maturity is greater than 8%. We know that if the yield to maturity were 8%, the bond would sell at par. At a price below par, the yield to maturity exceeds the coupon rate. Current yield = coupon payment/bond price = $80/$970. Therefore, current yield is also greater ...
[DOC File]Bond Yields and Prices
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Ex. Yield on 8% 5 year bond selling at par has duration* of 4.31 years rates go to 71/2%. ΔP/P = - 4.31* (-.005) = .0216 =2.16%. Convexity. If you have large yield changes then modified duration becomes less accurate. Duration equation assumes a linear relationship between price and yield
[DOCX File]Unisa Study Notes
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The price of a bond is $920 with a face value of $1000 which is the face value of many bonds. Assume that the annual coupons are $100, which is a 10% coupon rate, and that there are 10 years remaining until maturity. This example using the approximate formula would be. After solving this equation, the estimated yield to maturity is 11.25%.
[DOC File]Chapter 10
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You will find that the yield to maturity on a semi-annual basis is 4.26%. This implies a bond equivalent yield to maturity of: 4.26% ( 2 = 8.52%. Effective annual yield to maturity = (1.0426)2 – 1 = 0.0870 = 8.70%. Since the bond is selling at par, the yield to maturity on a semi-annual basis is the same as the semi-annual coupon, 4%.
[DOC File]Quantitative Problems Chapter 5
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(b) The yield to maturity would be 5% for a one-year bond, 4.5% for a two-year bond, 4.33% for a three-year bond, 4.25% for a four-year bond, and 4.2% for a five-year bond. The upward-sloping yield curve in (a) would be even steeper if people preferred short-term bonds over long-term bonds because long-term bonds would then have a positive risk ...
[DOC File]BASICS OF BOND VALUATION
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= Approximate Yield-to-Maturity Yield Percentage Note: The investor uses the bond's computed YTM by comparing it to his/her required rate of return on the bond after considering all risk factors. 1) If the investor's required return is greater than the YTM, the investor should not buy the bond
[DOC File]Solutions to Questions and Problems
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For noncallable bonds, the yield to maturity and required rate of return are interchangeable terms. Unlike YTM and required return, the coupon rate is not a return used as the interest rate in bond cash flow valuation, but is a fixed percentage of par over the life …
[DOC File]RWJ 7th Edition Solutions
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For noncallable bonds, the yield to maturity and required rate of return are interchangeable terms. Unlike YTM and required return, the coupon rate is not a return used as the interest rate in bond cash flow valuation, but is a fixed percentage of par over the life …
[DOC File]ANSWERS TO REVIEW QUESTIONS
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The term structure of interest rates is the relationship of the rate of return to the time to maturity for any class of similar-risk securities. The graphic presentation of this relationship is the yield curve. 6-3. For a given class of securities, the slope of the curve reflects an …
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