Yield to Maturity

[TolgahanKuce]

where does it say semi annually on the paper in front of him? can someone answer me this question please because i just don't get it! I'm going crazy!!!

A two-year bond with a 10% coupon paid annually and face value of £1,000 is being traded at £949.47. Calculate the YTM.

[kevinbracker]

@TolgahanKuce Bonds typically pay interest semi-annually so I assume this for all problems done in my class. If your bond pays interest annually, just keep your periods per year at 1, set the N = 2 and the coupon annual (PMT = 100).

[kevinbracker]

@barca2610 Yes you can...although I don't do homework requests. The selling price is a % of par and even though they are giving the full bond issue, you can still do it on a per-bond basis.

[MrRednijlad]

great example thanks

[DudeDesi07]

How did you get 1,000 for FV?

[kosmosleha]

@DudeDesi07 usual bonds are $1000

[kosmosleha]

@kosmosleha in other words, you are getting 35bucks every period and at the end of the 20 years you get your 1000 back :)

[DudeDesi07]

How do we know something is a cash outflow and therefore making the PV negative?

[kevinbracker]

@DudeDesi07 You have to buy the bond (making the current price you pay today -- PV -- a cash outflow). In exchange for buying the bond today, you receive the coupon payment and par value (making them cash inflows). Cash outflows are negative, cash inflows are positive. As for the $1000 Future Value, look down the comments page a couple spots...its addressed below.

[polarhuynh123456]

@kevinbracker . Thanks man, you save me so much time in my finance class at univeristy. You are the man, more people need to post videos likes these !!

[waggygee]

Equations would be nice

[MrHussey05]

AWESOME VIDEOO!! NICE WORK WITH PRESENTATION.. :D

[rfish2]

Great explanation, but how do you know F.V. is 1000?

[kevinbracker]

@rfish2 Most corporate bonds have a par value of $1000, so I tell my classes to assume a $1000 par value unless otherwise stated. The par value is both the amount that the coupon payment (coupon rate is a % of par value) is based on as well as the value returned at maturity (FV).

[cooolpavan]

@kevinbracker Can we assume the par value as the issue price? the one given in the prospectus?

[kevinbracker]

@cooolpavan No. In my class, I tell them to assume a $1000 par value as it is the norm and that makes life a lot easier. However, it is possible for bonds to have a par value different than $1000. While it may be different than $1000, it is not the same as the issue price. For example, if I issue a zero coupon bond, it will always be for less than par value (assuming non-convertible). Par value is what the bond will pay at maturity, not what was received at issue.

[cooolpavan]

@kevinbracker I understand now. Thanks for your reply.

[satchi123]

equations wud be helpfu

ll

[Elvinarius]

THANK YOU !!!!!!!!!!!!!!!!!!!!!!

[jonjonperico]

subscribed and favorited

[DougMacRay]

Thank you sir for posting this problem. You just saved me an hour of time trying to figure out a similar problem in my Financial Management Class.

Anyone using a TI BA II Plus or HP 12C Calculator- Just remember his calculator is set for semi-annual payments (two periods per year) The first time you try this example your answer will be half this because of that formatting change.

Thank you again sir.

[7shami]

what is the difference between YTM and par yield,

[kevinbracker]

The YTM represents the expected rate of return for the investor from now to maturity based on using today as a purchase price. This assumes that the investor will be able to reinvest coupons at the YTM (which is often a stretch).

The par yield is a more complex bond analysis tool based on underlying spot rates.

[7shami]

thank you for your reply

[MadisonMontgomery]

awesome!! Better than HP's site! thanks

[qatari5898700]

thank you for the effort, keep going !!

[aubreymae84]

Incredibly helpful! Thank you!

[cadillacjoe425]

Thank you very much, this is very helpful.