Is YTM is similar to current yield of similar bond? If its different then hw is it calculated?
No they are different CY=Coupon/Current Price YTM= All future cashflows discounted with IR (say x%) to make the total value of bond equal to present value. Which means Current price =CF0+[CF1/(1+YTM)]+[CF2/(1+YTM)^2]+…+[CFn/(1+YTM)^n]
CY only considers the coupon and current price, while YTM considers both of those factors as well as the term to maturity.
YTM = Current Yield + Capital Gains Yield (CGY is the % change in the price of the bond over the next year). So, for a discount bond, Current Yield < YTM (because CGY > 0) So, for a premium bonf bond, Current Yield > YTM (because CGY < 0)
busprof Wrote: ------------------------------------------------------- > YTM = Current Yield + Capital Gains Yield > (CGY is the % change in the price of the bond over > the next year). Hmm… Interesting… I guess the CGY = " % change in the price of the bond over the next year " assuming that interest rates do not change. Right?
I’ve never seen current yield defined like that, and I’m not sure what it means. How can you know the capital gains today?
If interest rates don’t change you know what the gains will be.
sure Joey, but current yield is abut now not the future…that’s why incidenty it’s called current. It’s an interestting thought, but current yield as always provided does not (unless something has changed) involve cap gains.
JoeyDVivre Wrote: ------------------------------------------------------- > busprof Wrote: > -------------------------------------------------- > ----- > > YTM = Current Yield + Capital Gains Yield > > (CGY is the % change in the price of the bond > over > > the next year). > > Hmm… Interesting… > > I guess the CGY = " % change in the price of the > bond over the next year " assuming that interest > rates do not change. Right? If we’re being nitpicky (always a good thing), I gues I should have said that the CGY is the EXPECTED % change over the coming year, assuming that interest rates do not change. Thanks to that, I hereby bestow on you the title we all gave one of our grad school advisors - CPB (Chief Picky B*s*ard"). It was used with the greatest of affection, btw…
busprof Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > busprof Wrote: > > > -------------------------------------------------- > > > ----- > > > YTM = Current Yield + Capital Gains Yield > > > (CGY is the % change in the price of the bond > > over > > > the next year). > > > > Hmm… Interesting… > > > > I guess the CGY = " % change in the price of > the > > bond over the next year " assuming that > interest > > rates do not change. Right? > > If we’re being nitpicky (always a good thing), I > gues I should have said that the CGY is the > EXPECTED % change over the coming year, assuming > that interest rates do not change. > > Thanks to that, I hereby bestow on you the title > we all gave one of our grad school advisors - CPB > (Chief Picky B*s*ard"). > > It was used with the greatest of affection, btw… Dreary: I wasn’t saying that current yield involved capital gains - merely that there’s a relationship to YTM (given, of course, that interest rates don’t change)
So if the amount of the bond is 125M euro, the issue price = 99.731%, maturity = 7 years and the annual coupon is 5.5% on annual installments, how would I calculate the yield of maturity, the modified duration and duration?
You have the present value, the future value, the number of periods, and the periodic payment. Your financial calculator can calculate the YTM.
Once you have the YTM, change it by ±1% or ±50bp or whatever, use your calculator to compute the prices for those new yields, then use the formula for modified duration.
Which duration do you mean here? How does “duration” differ from “modified duration”?
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I laid out the BAII steps for calculating YTM in the LII thread. I also posted a pic of the Macaulay duration formula. 
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The question said modified duration and duration. I’m not sure what that means. I do understand the formula for modified duration so I got that now. I got stuck on the YTM a bit but think I got it now. Thanks!
Thanks!
What did you get for the YTM?
5.5
If the YTM were 5.5%, what would today’s price be?
Hint: not 99.731.