Yield To Maturity Formula Yield to Maturity Equation

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Yield To Maturity Formula

Yield To Maturity Formula

Yield to Maturity Equation - Closed Form (started with a geometric series…) Calculate price

Yield to Maturity Equation - Closed Form (started with a geometric series…) Calculate price of bond with par value of $1, 000 to be paid in 10 years, a coupon of 10% and YTM of 12%. Assume coupons are paid semi-annually to bond holders: 1) Determine number of coupon payments (2 per year for 10 years = 20) 2) Determine value of each coupon payment (divide coupon in half since semi-annual). Each payment will be $50 ($1000 * 0. 05). 3) Determine the semi-annual yield: Like the coupon rate, the YTM of 12% must be divided by 2.

YTM - Frequency Parameterized Accounting for different payment frequencies: Most bonds pay semi-annually but

YTM - Frequency Parameterized Accounting for different payment frequencies: Most bonds pay semi-annually but to make our formula more general we extend formula with parameter “F” below. if a bond was paying annual coupons F = 1, quarterly = 4

While more programmer friendly, what do we assume away with this formula? • Assumes

While more programmer friendly, what do we assume away with this formula? • Assumes all intermediate flows are discounted at same rate (the YTM) • A more general implementation is the “cash-flow series” • A collection of individual cash-flows which can: – Support assigning different interest rates to individual cash-flows – Represent changing principal amounts (e. g. , for amortizing instruments) – Support independent processing of individual cash-flows (e. g. , date adjustments)

Deliverables for next week: - Download the “living spec” prototype spreadsheets. - Build calculator

Deliverables for next week: - Download the “living spec” prototype spreadsheets. - Build calculator class around PV function - Implement Closed Form Equation - Calculate price from yield and price sensitivity to yield change (first partial derivative) : “DV 01” (dollar value of 1/100 of a percent) - Download sample code to load test data - File access & parsing “SBB_util. *” - Run your main() loading data. txt on site. - You will need to calculate number of periods… (download the date code on the site)