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
JB has recently joined the Finance Department of P Company as a trainee management accountant. As part of the Company's induction, she has been offered a mentor. Though, since JB h

Q. Nature of Financial Management? Financial Management is an necessary part of Top Management: - In the contemporary business management the financial manager is one of the ac

Your task is to prepare a presentation for a group of board members who are considering an investment of $100 million in your company. Your presentation will consist of three disti

BASRIL PLC (a) (i) Analysis of projects assume they are divisible. Project 2 NPV at 12% = (140800 × 3·605) - 450000 = $57584 Project 2 profitability index = 5

Explain the Advantagesand disadvantages of MBO Advantages of MBO Disadvantages of MBO Sale can be arranged quickly   Manag

Can a corporation have too much working capital?  Explain. A firm can have in excess of working capital if it is losing the opportunity to invest in high returning fixed assets

what are the key stages in capital investment decision-making process and the role of investment appraisal in this process?

When an investor buys a bond in between coupon payments, he is supposed to compensate the seller with the coupon interest earned on the bond from the last coupon

Management of pension funds Employees Provident Fund Organization (EPFO) is the major organization which deals with the pension system in India. The Employees' Provident Fund O

Q. Example on interest rate movements? Cap/floor volatility is consideration to be higher than swaption volatility because the market buys volatility trough swaptions as well a