Yields

Question 1

Money Market Yield

Answer 1

HPY * 360/# of days

HPY = (price - purchase price + divds) / purchase price

Question 2

Holding Period Yield

Answer 2

HPY = (price - purchase price + divds) / purchase price

Question 3

Discount Basis Yield

Answer 3

Discount-basis yields = % discount from face value × (360/days).

Question 4

Effective Annual Yield

Answer 4

EAY = (1+HPY) ^ (365/t) - 1

Question 5

Bond-equivalent yields

Answer 5

Bond-equivalent yields = HPY × (365/days).

Question 6

Bank discount yield

Answer 6

$ amount of discount / face/par value × (360/days)

Question 7

Convert semi or quarterly yield to effective annual yield

Answer 7

.
A semiannual-pay bond (periodicity of two) with an 8% YTM has a yield of 4% every six months and an effective yield of 1.04^2 – 1 = 8.16%.

A quarterly-pay bond (periodicity of four) with an 8% yield-to-maturity has a yield of 2% every three months and an effective yield of 1.02^4 – 1 = 8.24%.

Effective yield is always higher because of interest on interest

Question 8

Convert an annual yield to semi or quarterly tbd

Answer 8

for semi –> annual yield ^( 1/2)

for quarterly –> annual yield ^ (1/4)

Question 9

Convert a semi or quarterly yield into effective annual yiled

Answer 9

semi yield ^ 2 - 1

Corporation bond is quoted with a YTM of 4% on a semiannual bond basis.

Answer:

The first thing to note is that 4% on a semiannual bond basis is an effective yield of 2% per 6-month period.

To compare this with the yield on an annual-pay bond, which is an effective annual yield, we need to calculate the effective annual yield on the semiannual coupon bond, which is 1.02^2 – 1 = 4.04%.

Think of it like this, it INT on INT so your first payment is 1.02 you would multiply that by 1.02 to get your second payment. 1.02^2

quarterly would be^4