Fixed Income- Equating Periodicity of bonds

sahilarora355
Posts: 1
Joined: Mon Feb 01, 2016 12:32 pm

Fixed Income- Equating Periodicity of bonds

Postby sahilarora355 » Sun Mar 20, 2016 3:10 pm

Good Evening,

I am finding it difficult to understand and solve questions related to periodicity of bonds.

Example,

There is a bond with maturity term 3 years, Coupon 5%, trading @ 104 semi-annually. We need to adjust bond yields which would equate different periods of YTM to each other. FV= 100

I know the formula is {1+Annual Yield/m}^m = {1+Annual Yield/n}^n

In this case I calculated the semi- annual YTM = 1.790927 %

How do I equate this semi annual YTM to a quaterly and monthly YTM ?

Regards,
Sahil Arora

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Fixed Income- Equating Periodicity of bonds

Postby edupristine » Mon Mar 21, 2016 8:17 am

Hi Sahil

Semi Annual Yield To Maturity is calculated with following formula i.e

Semi Annual YTM = {[(F-P/n)+ C]/(F+P)/2]}
where F= face value
P=price
C=coupon/Interest Payment
n=years to maturity

and Quaterly Yield is calculated as= semi annual (YTM)^1/2


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