Traditional yield measures, Financial Management

Assignment Help:

Current Yield

Current yield is defined as the annual coupon interest received on the market price.

         Current Yield =  1237_current yield.png                

For example, the current market price of a bond is Rs.843 and the coupon interest payment received on it is Rs.70. The Current yield of the bond is:

         Current Yield = 70/ 843 = 0.83, which can also be expressed as 8.3%.

Current yield for a bond selling at par would be equal to the coupon interest rate. Current yield of a bond selling at a premium (discount) would be less (greater) than the coupon interest rate.

An important drawback of current yield is that it considers only coupon income as a source of return to the investor, ignoring interest and capital gains (loss) that would also accrue.

 Yield to Maturity (YTM)

It is the rate of return earned by an investor who purchases a bond and holds it till maturity. YTM is the discount rate which equals the present value of promised cash flows to the current market price/purchase price.


Related Discussions:- Traditional yield measures

Functional silo, It is a phrase referring to the tendency of departments to...

It is a phrase referring to the tendency of departments to become isolated from one another in a functionally structured company.

Borrowing funds to purchase bonds, Borrowing Funds to Purchas...

Borrowing Funds to Purchase Bonds There are several sources available to borrow funds. When securities are purchased with borrowed funds then the mo

Drawbacks or criticism of mm approach, Q. Drawbacks or Criticism of MM Appr...

Q. Drawbacks or Criticism of MM Approach? Risk Perceptions of personal as well as corporate leverages are different: - It is incorrect to presume that 'personal leverage' is a

Explain the political events in a host country, Discuss the different ways ...

Discuss the different ways political events in a host country may affect local operations of an MNC. Answer:  The answer can be organized based on the three types of political ri

Dow jones global index (djgi), Dow Jones Global Index (DJGI) The DJGI a...

Dow Jones Global Index (DJGI) The DJGI aims to cover 95% of market capitalisation at country level. As with FTSE and MSCI, there are the same 23 developed markets, but with gre

Beta value, Beta Value Risk is an important consideration while investi...

Beta Value Risk is an important consideration while investing in any security. It is the possibility that realised returns will be less than the returns expected. The degree, t

How do risk-averse investors compensate for risk, How do risk-averse invest...

How do risk-averse investors compensate for risk when they take on investment projects? Due to the risk aversion, people demand higher rates of return for taking on higher-risk p

Explain marginal cost of capital, Q. Explain Marginal cost of capital? ...

Q. Explain Marginal cost of capital? The calculation of cost of capital focused when the firms total financing and its paten of financing is given and remains constant. However

Regular payback period, The director of capital budgeting for a firm has re...

The director of capital budgeting for a firm has recognized two mutually exclusive projects, A and B, with the following expected net cash flows:

Example on hedge fund, Q. Example on hedge fund? Hedge Fund enters agre...

Q. Example on hedge fund? Hedge Fund enters agreement to sell HK$ in six month's. At expiration the Hedge Fund requires to buy spot HKD and deliver these against the short futu

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