Yield, Financial Management

Yield

Yield represents the actual return on the investments. Different types of yield are discussed below:

Coupon Yield: The fixed interest rate on a government security or bond is called coupon yield. For example, 12.00% GOI 2008 implies that 12.00% is the coupon yield. Change in the interest rates, inflation rate or any other economic factor will not be represented by this yield.

Current Yield: Current yield is the present return available on the government security or bond based on its purchase price. It is the ratio of annual interest payment to the current market price. This can be explained with an example; ‘X' has purchased 12.00% GOI 2008 at Rs.100 and ‘Y' purchased the same instrument at Rs.110. The current yield of ‘X' = 12.00%, the current yield of ‘Y' will be 10.91%.

Yield to Maturity (YTM): Yield to maturity is the rate at which all the future cash inflows of the bond have to be discounted to equate the cost price of the bond. This can also be termed as the Internal Rate of Return (IRR) of the government security or bond.

These securities are essentially fixed income securities. They are mostly issued in the form of coupon bearing securities where the coupon may be determined by RBI or the market. At times they are also issued in the form of zero coupon securities and floating rate securities. The yield on these securities consists of coupon income and redemption yield. The coupon income is paid half-yearly in case of coupon bearing securities to the holder. The redemption yield is return on investment from discounted cash flows up to redemption. Table below shows the weighted average coupon rates on GOI securities during the period 1997-98 to 2006-07.

 

Posted Date: 9/10/2012 7:35:17 AM | Location : United States







Related Discussions:- Yield, Assignment Help, Ask Question on Yield, Get Answer, Expert's Help, Yield Discussions

Write discussion on Yield
Your posts are moderated
Related Questions
Investors are always interested in estimating the price sensitivity of a bond to change in market interest rates. Let us study how prices change both in terms of

report on Financial Planning and Forecasting

What is Settlement date? Please provide me report on Settlement date. It is about 2000 words count report on topic Settlement date.

What do you meant by market-based and bank-based financial systems? Market-based versus bank-based financial systems implications. The presence of market-based and bank-base

Banks find it essential to accommodate their client’s requirements to buy or sell foreign exchange forward, in many examples for hedging purposes.  How can the bank eliminate the c

Leveraging can be described as an investing principle where borrowed funds are invested in a part of the securities. Leveraging can magnify either returns o

Q. Explain about Routine Functions? Routine Functions: - The routine functions are Supervision of cash receipts and payments. Opening Bank Accounts as well as managing them Saf

Pull Strategy Pull strategy define a marketing approach in which a manufacturer promotes a product directly to consumers in the hopes that the consumers will then request

Great Pumpkin Farms just paid a dividend of $3.50 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.  Investors require a 16 p

what are the stages involved in investment decision making