# Essays on Bond Yield Measures and Interest Rates Assignment

The paper "Bond Yield Measures and Interest Rates" is a wonderful example of an assignment on macro and microeconomics. It is important to note that the value of bonds is reduced once the interest rates increases and the bond value goes up once the interest rates reduce. The yield of these bonds can be measured using several methods(Rosen, 1995). This paper aims at giving detailed information on these yield methods and the effects the interest rates have on the value of bonds. Measuring bond yield The interest rate can be referred to as the yield of any investment and equalizes the current value of the anticipated cash flow that is from the entire investment to its cost.

This can be expressed in the following equation. P =  CFt / (1+y) n Where CFt is equaled to the cash flow in period t, p is the investment price, and n represents the number of periods represents the interest rate. On the other hand, the bond expression can be as follows, P =  C i / (1+y) n + P/ (1+y) n One thing to note from the yield calculation represents a certain period, or the period in which the interest is paid.

However, to undertake the yield calculation process a trial and error is the most appropriate method to use. In the case of zero-coupon bond this method is relevant because the intermediate cash flows are not available and yield determination is a straight forward issue(Rosen, 1995). The Yield Measures There are several bond yield measures that are used, which include the following. Nominal, current, yield to call, yield to maturity, and realized yield measure (Jarrow, 2002). Nominal yield This stands for a rate of a coupon of a certain issue.

For example, a bond with a coupon of 8% means that it has a nominal yield of 8%, Therefore, convenient ways of expressing the characteristics of the bond coupon are provided. The following is a numerical example of this measure NY=income per year/par value*100 For example, The bond income per year=\$ 20 Par/face value=\$ 100, therefore, NY=20/100= 0.2*100 =20% Current yield measure This form of measurement relates the yearly coupon rate to the bond price as illustrated in the following equation. CY =equals to the yearly Dollar Coupon Interest/price

References

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Fase, M. M. G. (1999). On interest rates and asset prices in Europe: The selected essays of Martin M.G. Fase. Cheltenham, UK: E. Elgar.

Jarrow, R. A. (2002). Modeling fixed-income securities and interest rate options. Stanford, Calif: Stanford University Press.

Kugler, P. (1996). Long term bond yields, monetary policy and the expectations hypothesis of the term structure of interest rates. Bern: Universität Bern

Macaulay, F. R. (1938). Some theoretical problems suggested by the movements of interest rates: Bond yields and stock prices in the United States since 1856. New York: National Bureau of Economic Research.

Rosen, L. R. (1995). The McGraw-Hill handbook of interest, yields, and returns. New York: McGraw-Hill.

Sundell, P., Denbaly, M., & United States. (1992). Modeling long-term government bond yields: An efficient market approach. Washington, DC: U.S. Dept. of Agriculture, Economic Research Service, Agriculture and Rural Economy Division