Wednesday, January 20, 2010

Bond Yield Formula Current Yield Of A Bond And Capital Loss/gain At Premium Price?

Current yield of a bond and capital loss/gain at premium price? - bond yield formula

My book defines the current financial performance = coupon / price of the bond and capital increase the yield to maturity (YTM) minus the current yield (CY). Decreases for bonds whose prices say more than 1 years, I have no problem in applying the method and the finding that agrees with the intuitive efficiency of capital = Change in value of the deposit / initial value with the formula.

But what happens here, where no change in the value: "Ten years of semi-annual coupon a couple of $ 1000. The bond sells for $ 1100. (It is assumed that the link comes from)." What is the capital gain or loss? According to the formula, the performance of the CAP in a loss of -0.54%. That's my problem. As this is a capital loss if the tape comes out. Is it the requirement to sell at a higher price? When I for the formula: = earnings yield gains Cap The price of the original Form I -0.0054 * 1100 = 5.94 * U.S. dollar loss of capital. I think it has to do with the price premium is not BEC no gain or loss if the securities are sold at face value (YTM-CY = 0), but want an intuitive to say than the $ 5.94, based on my intuition comes, is the capital loss of $ 100Premium payments, but that is obviously not correct. Thank you ..

1 comment:

Anonymous said...

What do U think is right

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