ECONOM 3229 Lecture Notes - Lecture 6: Current Yield, Zero-Coupon Bond, United States Treasury Security
6 Apr 2015
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Often, we know the prices of bonds and we need to calculate how well of an investment a particular bond is. Yield to maturity: the interest rate that makes the present value of payments from an asset equals to the asset"s price today. It measures yield, or return, of a bond if we hold it to maturity. Calculating yield to maturity for coupon bonds. Suppose you buy future value, 5% coupon rate bond that matures in 1 year at a price of , yield to maturity is. For example, yield to maturity on coupon payment consol bond that sells for is. 3% : i= ytm = 6/200 = 3% This is also called current yield (cy). We can calculate current yield on coupon bonds as well. Very difficult by hand for long-term bonds u=5, c=2, fv=100, pv=101. The following relationships are true for any types of coupon bond (any maturity)
