EC223 Lecture Notes - Lecture 7: Zero-Coupon Bond, Current Yield, Nominal Interest Rate
Document Summary
A bond with no maturity date that does not repay principal but pays fixed coupon ic = yield to maturity ic = c / pc payments forever. I = c / p = 100 / 2000 = 0. 05 or 5% F = face value of the discount bond. P = current price of the discount bond. Ret = return from holding the time from time t to t+1. Pt = price of bond at time t. Pt+1 = price of the bond at time t+1. Ret = c/pt + pt+1 pt / pt. C / pt = current yield = ic. Pt+1 pt / pt = rate of capital gain = g. The return on a bond will not necessarily equal the yield to maturity. The return equals the yield to maturity only if the holding period equals the time to maturity.
