Yield measures for fixed rate bonds

Question 1

YTM - coupon bonds

Answer 1

the frequently you compound the higher the YTM

Question 2

YTM - zerocoupon bond

Answer 2

the bigger period the lower the rate

Question 3

comparing bonds

Answer 3

change the periodicity to the same one

(1+r1/m)^m = (1+r2/n)^n

m,n = different periodicity

Question 4

street convention

Answer 4

yields are quoted assuming coupons are paid on scheduled dates (ex. no weekend and holidays)

Question 5

true yield

Answer 5

uses actual payment dates
(never higher than street con) (payed on holiday also)

Question 6

government equivalent yield

Answer 6

yield 30/360 * 365/360

Question 7

simple yield

Answer 7

(coupon + amortization of disc or prem)/PVflat

Japanese gov

is used for callable bonds (YTM not equal r)

Question 8

yield to call

Answer 8

PV = bond price
FV = call price

Question 9

yield to worst

Answer 9

the lowest yields of all calls

Question 10

spread

Answer 10

=risk premium = (tax, credit risk, liquidity)

based on microeconomics factors and also makro

Question 11

benchmark

Answer 11

=risk free = (real rate, inflation)

based on macroeconomic factors

Question 12

G-spread

Answer 12

measuring spread using gov benchmark

we want to know spread of 24y
we take gov 20y and gov 30y
Y1-Y2/years between * years that passed (4)

this is the benchamrk

spread is calculated by YTM-banchmark

Question 13

I-spread

Answer 13

the same but we use Interbank rate (swap rate)

Question 14

Z-spread

Answer 14

0-volatility spread,

uses spot rates

Question 15

OAS

Answer 15

z spread +option value

option adjusted spread

requires a pricing model