Okay, so my buddy at work asked me how to find the YTM, I, on a bond that we’d buy for 103 currently and it has a semi-annual coupon of 8.75%. The issue is that we’d only hold it for 10 months, but would capture both coupon payments (something like paying in October and April). This should be a level 1 thing on my calculator, but how do I account for only 10 months…so what are we getting on it when all is said and done? What would be the method to do on my calc, or is this a more involved process for someone unlilke me that stays away from this ish? Thanks

Just whip up a quick spreadsheet mapping out the cashflows, and calculate the irr. You cashflows would be: Today: Outflow for accrued interest since last coupon + (1.03 x Par value of amt purchased) October: Inflow for coupon payment April: Inflow for coupon payment + Maturity at par (assuming it matures then; if you’re assuming that you’re selling it in April, you’ll need to plug in an estimate for your selling price).

Is there NO possible ways to do this on a calc?

Use the bond function on the BA II Plus. I’m just using whatever dates as you didn’t specify. 2nd>Bond Settlement date = 06/03/2008 (entered as 6.0308) Coupon = 8.75 (the annual coupon) Redemption date = 4/10/2009 (entered as 4.1009) Redemption value = 100 (as a % of par) 360 day convention (I think most are calculated this way?) 2/Y (2 coupons per year) CPT YTM That should do it!

XSellSide Wrote: ------------------------------------------------------- > Use the bond function on the BA II Plus. I’m just > using whatever dates as you didn’t specify. > > 2nd>Bond > Settlement date = 06/03/2008 (entered as 6.0308) > Coupon = 8.75 (the annual coupon) > Redemption date = 4/10/2009 (entered as 4.1009) > Redemption value = 100 (as a % of par) > 360 day convention (I think most are calculated > this way?) > 2/Y (2 coupons per year) > CPT YTM > > That should do it! Thanks very much, dude. Much appreciated.

Does the calculator method take into account the premium paid to purhase the bond (i.e., 103% of par), and the accrued interest paid upfront?

Anonymous - It does consider the price, I just forgot to list that in my post. And I believe it considers the accrued interest. Can someone confirm? I don’t have a BAII on me (for shame!).

XSellSide Wrote: ------------------------------------------------------- > Use the bond function on the BA II Plus. I’m just > using whatever dates as you didn’t specify. > > 2nd>Bond > Settlement date = 06/03/2008 (entered as 6.0308) > Coupon = 8.75 (the annual coupon) > Redemption date = 4/10/2009 (entered as 4.1009) > Redemption value = 100 (as a % of par) > 360 day convention (I think most are calculated > this way?) > 2/Y (2 coupons per year) > CPT YTM > > That should do it! This isn’t exactly right. This assumes the bond matures on the redemption rate given. That doesn’t appear to be the case. It sounds to me like you plan on selling the bond on this date, but it still has time remaining till maturity. Correct me if I am reading this wrong.

wyantjs - ah, right. In that case, I think you’d just have to make an assumption for the price you sell it at, not 100% (unless that’s your assumption).

Then it wouldn’t be a YTM - a yield to Maturity. April is about 10 months away - so I’d assume he’ll be redeeming at par. Calcavatrix says 5.038 YTM | Purchase today/redeem 1st April

Not really. YTM is a measure if held to maturity, hence the name. Computing YTM now is the same as above, but just put the maturity date in for the redemption date. It sounds to me like you are trying to compute a holding period return, which is a whole different story. This involves a forcast of the sell price, which in turn involves a forcast of interest rates.

if you want to calculate HPR you can estimate selling price using forward pricing: FP = (P - PVC)*(1+rfr)^T, then you can plug that final cash flow and calculate HPR using your calculator.

maratikus Wrote: ------------------------------------------------------- > if you want to calculate HPR you can estimate > selling price using forward pricing: > > FP = (P - PVC)*(1+rfr)^T, then you can plug that > final cash flow and calculate HPR using your > calculator. This only works IF you sell the forward. Forward prices are not predictors of future spot prices, and should not be used as an estimate of them. The bond price 10 months from now depends on a completely random interest rate factor that follows a stochastic process, which entails quite a bit more math to estimate.