YIELD TO MATURITY ACCRUED INTEREST QUOTED PRICE …
YIELD TO MATURITY ACCRUED INTEREST
QUOTED PRICE INVOICE PRICE
September 1999
Quoted Rate Treasury Bills [Called Banker's Discount Rate]
d = [ P1 - P0 ] * [ 360 ]
P1
N
d = Bankers discount yield
P1 = face value P 0 = Price N = number of days until maturity
P1* N * d = P1 -1
P0 360
P0
1 +
P 1 P0
d* N 360
=
P1 P0
=
holding
period
return
2
The invoice on a bond (what you pay) is quoted price plus accrued interest.
3
Government Bonds and Notes
Calculating Accrued Interest
Accrued interest is actual days/actual days
Last coupon date
settlement date
next coupon date
x
y
Accrued interest = x/y times interest payment
Example:
(1) 10% coupon (2) $100 interest annually or $50 semi-annual per
$1000 face
y = 183 x = 100
100 [50] = $27.32 183
4
Yield To Maturity
1. One coupon left [like T bill]
2. At coupon paying date
0
1
2
3
4
C Po
C
C
C
C + Prin
P0
=
C [1 + r
]
+
C [1 + r
]2
+
C [1 + r
]3
+
C + Prin [1 + r ]4
2
2
2
2
3. Between Coupon Dates
P0
+
A
=
C [1 + r
]w
+
[1 +
C r ]1+ w
+
[1 +
C r ]2+w
+
C + prin [1 + r ] 3+w
2
2
2
2
5
................
................
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