Concept of yield measures, spot rates and forward rates, Financial Management

  • A fixed income security investor can expect to receive a rupee returns from the following sources: (a) Interest payment, (b) Capital gain or loss at maturity or when sold, and (c) Income from reinvestment of the interim cash flow.

  • Other than zero coupon bonds, all fixed income securities make periodic payments in the form of coupon interest until the security is not removed from the portfolio.

  • Current yield measures the rate of return earned on a bond if it is purchased at its current market price and if the coupon interest is received.

  • Yield to maturity is the rate of return earned by an investor who purchases a bond and holds it till maturity.

  • Yield-to-call is similar to yield-to-maturity and is used to calculate the value of a callable bond.

  • Yield-to-put is the rate at which the present value of cash flow to the first put date equals the price plus interest rate.

  • These T-bills are short-term securities with maturity of 91,182 and 364 days. These are issued at a discount and are redeemed at par.

  • Theoretical spot rate is the interest rate that should be used to discount a default-free cash flow.

  • The nominal spread is the difference between the yield for a non-treasury bond and a comparable maturity treasury coupon security.

  • The nominal spread fails to consider the term structure of the spot rates and the fact that, for bonds with embedded option, future interest rate volatility may alter the cash flows.

Posted Date: 9/10/2012 2:48:24 AM | Location : United States







Related Discussions:- Concept of yield measures, spot rates and forward rates, Assignment Help, Ask Question on Concept of yield measures, spot rates and forward rates, Get Answer, Expert's Help, Concept of yield measures, spot rates and forward rates Discussions

Write discussion on Concept of yield measures, spot rates and forward rates
Your posts are moderated
Related Questions
The Japanese Pension Fund System The Japanese pension system is a multi-pillar system. Public and private pension schemes are the two important pillars. The first tier is the Ba

State the second element of capital budgeting decision The second element of capital budgeting decision is the analysis of risk and uncertainty. As the benefits from investment

explain for factors influencing design for dividend policies

The Directors of Rohan Plc are discussing the importance of the dividend policy on the market value of their firm. The Chairman considers that the dividend is important and does a

Select a business with which you are familiar and identify examples of customers using search, experience, and credence quality to evaluate the good or service


Water Wheelies manufactures high-pressure sprinkler heads. These are produced periodically at a rate of 20,000 per month. Demand is steady at 15,000 per month. Each production run

Bid The price buyers provide to acquire securities or privacy from sellers.

Honey Well company is contemplating to liberalize its collection effort. It''s present sales are 1000000 and it''s average collection period is 30 days, it''s expected variable c

Explain the significant feature of the wealth maximisation The significant feature of the wealth maximisation criterion is that it considers is that it considers both the quali