Yield to put, Financial Management

Assignment Help:

Yield to put is the rate at which the present value of cash flow to the first put date is equal to the price plus interest rate. It is used for putable security. It is also similar to yield to call. The assumptions under the yield to put calculation are:

  • Any interim coupon payment can be reinvested at the yield calculated.

  • The bond will put on the first put date.

For example, assume a Rs.100 par value, 7% 5-year bond is selling for Rs.104.66 and putable at par at the end of three years. If the bond is put at the end of three years then the cash flow will be like this:

Table 1: Showing Cash Flows in Different Year

Year

Receipts

Total Receipts in the Year Rs.

1st year

Two coupons of Rs.3.50 each

7

2nd year

Two coupons of Rs.3.50 each

7

3rd year

Two coupons of Rs.3.50 each + put price 100.00

107

The present value for interest rates is shown in table 6. It is very clear from the table that 5.30% annual rate makes the present value of the cash flow equal the price of Rs.104.66. So 5.30% is the yield to put.

Table 2

Annual Interest Rate (%)

Semiannual Interest Rate (%)

Summated PV of 6 Cash Flow Payments of Rs.3.50 each (Rs.)

PV of Rs.100.00
(Rs.)

PV of
Cash Flow (Rs.)

4.90

2.45

19.3107

86.48

105.79

5.10

2.55

19.2462

85.98

105.22

5.20

2.60

19.2141

85.73

104.94

5.30

2.65

19.1821

85.48

104.66                                          


Related Discussions:- Yield to put

Explain medium term expenditure framework, Question 1: The various crit...

Question 1: The various criteria for evaluating a revenue measure or system are: ? Yield ? Political expediency ? Consistency with economic and social goals ?

Spot transaction hedge/Money market hedge, There are three parts to this qu...

There are three parts to this question. Please answer all parts. The Chicken Company, a company with headquarters in Switzerland, has a receivable of one million euro, which it wil

Why do analysts calculate financial ratios, Why do analysts calculate finan...

Why do analysts calculate financial ratios? Ratios are comparative measures.  For the reason that the ratios show relative value, they permit financial analysts to compare inf

Approaches of the strategic human resource management, Approaches of the St...

Approaches of the Strategic human resource management (SHRM): 1. Attempts to the human linkage of some kind activities with competency based performance measures. 2. Attemp

Net present Value, Given below are the cash flows of a project. Find out th...

Given below are the cash flows of a project. Find out the net present value of the project. Cost of capital is 18% and initial investment is Rs. 2,00,000. Year Cash Flows (lakhs)

What is an annuity?, What is an annuity? An annuity is a sequence of e...

What is an annuity? An annuity is a sequence of equal cash flows, spaced consistently over time.

Prepayments, Principal repayment before the scheduled date is calle...

Principal repayment before the scheduled date is called a prepayment. Every individual borrower normally has the option to pay off all or part of their loan

Equity, how do we measure equity in an orgarnisation

how do we measure equity in an orgarnisation

Assignment, Imagine you have been allocated $100,000 which is to be investe...

Imagine you have been allocated $100,000 which is to be invested in 8 companies listed on the Australian Stock Exchange (ASX). You are required to have a balanced portfolio betwee

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd