The paper "Bond Yield Measures" is a wonderful example of a report on macro and microeconomics. Every investor is interested in the return he gets from an investment made. Therefore it is necessary for one to calculate the yield that has a present value equal to the original cost or investment amount. It is expressed as a percentage and the factors in its calculation include the face value of the bond, the years to maturity, coupon rate, and the current value of the bond in the market. Investors would prefer to hold on to bonds with positive convexity during increasing market interest rates (Besley and Brigham, 2008).
Any cost to be for investment is calculated asP =Where P is the maximum price that an investor should make when purchasing a bond, it is cash flow in year t and y is yield. In most instances, y is calculated using an internal rate of return methods of trial and error. There are many measures of yield which include Yield to maturity, realized yield and expected yield, Current Yield, Yield to Call, Yield to Put, Yield to Worst, and Cash Flow Yield (Crescenzi, 2010). Measures of yieldYield to Maturity- Yield to maturity is the yield that an investor will have if he holds the bond to maturity and during that period all interest earned is expected to be reinvested.
It is considered the present value of all cash flows made from the bond. It is the rate of return expected or promised on a bond if the bond is held by the investor till the maturity of the bond. It is expressed as a percentage and the factors in its calculation include the face value of the bond, the years to maturity, coupon rate, and the current value of the bond in the market (Fischer and Jordan, 2006).
It is calculated asWhere: is the value of the bond, is annual interest, its required rate of interest, is the principal value of maturity and n is the life of the bondIt is easy to see that although bonds carry a promise to maintain a constant-dollar interest payment to maturity, I, and pay a fixed principal at maturity, P, the number of years to maturity, N, and the required rate of interest, I, can vary. Assume the bond with the Le us assume a 10-year bond with a principal value of $1,000, bearing a nominal rate of interest of 10 percent.
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