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Tax-Equivalent Yield (TEY) – This is the return that a taxable bond needs to match the yield on a comparable tax-exempt bond. Bond Price vs. Yield: Why It Matters?
YTD measures are more sensitive to changes early in the year than later in the year. In contrast, measures like the 12-month ending (or year-ending) are less affected by seasonal influences. For example, to calculate year-to-date invoicing for a company, sum the invoice totals for each month of the current year up to the present date. [2]
If P is defined for all future t then we can easily recover the yield (i.e. the annualized interest rate) for borrowing money for that period of time via the formula = / The significant difficulty in defining a yield curve therefore is to determine the function P(t). P is called the discount factor function or the zero coupon bond.
The examples assume interest is withdrawn as it is earned and not allowed to compound. If one has $1000 invested for 30 days at a 7-day SEC yield of 5%, then: (0.05 × $1000 ) / 365 ~= $0.137 per day. Multiply by 30 days to yield $4.11 in interest. If one has $1000 invested for 1 year at a 7-day SEC yield of 2%, then:
The forward rate is the future yield on a bond. It is calculated using the yield curve . For example, the yield on a three-month Treasury bill six months from now is a forward rate .
Analytic Example: Given: 0.5-year spot rate, Z1 = 4%, and 1-year spot rate, Z2 = 4.3% (we can get these rates from T-Bills which are zero-coupon); and the par rate on a 1.5-year semi-annual coupon bond, R3 = 4.5%. We then use these rates to calculate the 1.5 year spot rate. We solve the 1.5 year spot rate, Z3, by the formula below:
The yield to maturity (YTM), book yield or redemption yield of a fixed-interest security is an estimate of the total rate of return anticipated to be earned by an investor who buys it at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule. [1] [2]
Continue reading ->The post Yield vs. Return: What's the Difference? appeared first on SmartAsset Blog. However, there are some important differences to note for yield vs return.