November 1998
Intermediate to advanced
220 pages
6h 36m
English
Content preview from Fixed Income and Interest Rate Derivative Analysis
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VALUATION OF FIXED CASH FLOWS WITH PERFECT REPLICATION 15
Yield-to-maturity Also given in newspapers is the yield-to-maturity
(y-t-m) of a bond. This is the single rate which sets the present value of
all cash flows to the gross price of the bond. The actual formula is
1 1
Pg - 1 + y/2) t~/Nd
k=l
(1
+
y/2) k-1 -Jr
(1
+
y/2) n-1
where,
Pg- gross price,
y - yield-to-maturity,
tsc =
days from settlement to next coupon date,
Nd ----
days in coupon period, and
n -- number of future coupons.
Yield is a convenient way of expressing price--and nothing more. It is an
inherently flawed ...
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