Module 44.3: Yield Measures

Question 1

What is the formula for annual yield of a bond given TTM and n periods?

Answer 1

[ ( 1 + (YTM / n) ] ^ n - 1

Question 2

What is street convention vs. true yield?

Answer 2

street convention is yield calculated using the stated coupon dates.

true yield - taking into account the additional days of interest if coupon dates fall on weekends.

Question 3

What is the formula for current yield?

Answer 3

annual cash coupon payment / bond price

Question 4

What is a bond’s simple yield? how does it differ from current yield? What is the formula?

Answer 4

simple yield takes into account the discount and premium of a bond.

formula is: (coupon rate - amortization of discount / premium) / price

Question 5

what is “yield to call” or “yield to worst”

Answer 5

the yield to various call dates on the bond.

yield to worst is whichever the lowest between yield to call or yield to maturity.

Question 6

What is option-adjusted yield?

Answer 6

calculated by adding the value of the call option to the bond’s current flat price.

Question 7

what is the quoted margin vs. required margin for floating rate notes?

Answer 7

quoted margin - the margin used to calculate bond payments (spread)

discount margin - the margin / spread required to get the FRN it’s par value.