Forum Archive Index - June 2003

["Sethi, Vijay" <v.sethi@auckland.ac.nz>]

Title: Memo

Peter

 

To calculate yield to maturity (YTM) you need to have informtion on

a) face value of the note

b) the coupon rate ie the rate at which interest is paid out.

c) the frequency of the interest payment ie semi-annual or annual.

d) the purchase date

e) the maturity date

f) the purchase price

 

Then there is a big formula that calculates the YTM - most financial calculators like HP17BII or HP12C have this formula built in. If you do not have access to these calculators you could use the "YIELD" function in MS EXCEL to calculate. You could browse around other similar formulas in MS EXCEL that calculate yields and prices of other fixed income securities to see what suits your purpose. I am also assuming this is Australian or New Zealand bond - Americal bonds have a different parameter - their interest rate calculation work on a 360 day year as opposed to 365 day year mostly used in commonwealth countries!!

 

For more detailed understanding you need to understand and work thru "Time Value of Money" - any decent university financial text book should include that!

 

Hope this helps

 

Kind regards

Vijay

-----Original Message-----
From: John H T Wilkinson [mailto:jhtw@clear.net.nz]
Sent: Monday, 30 June 2003 2:06 p.m.
To: sharechat@sharechat.co.nz
Subject: Re: [sharechat] Capital Notes & yeild

You should not subtract the brokerage when calculating cost.

----- Original Message -----

From: Peter Hargraves

To: sharechat@sharechat.co.nz

Sent: Monday, June 30, 2003 11:16 AM

Subject: [sharechat] Capital Notes & yeild

 

 Can someone help me with the calculation of the return or yield from a capital notes purchase?

 

Details:

 

Face value $30,000 at 8.5% yield.

 

Total purchase cost is $30,351.70

 

Advised this includes $103.94 accrued interest plus $248.68 brokerage at a "net return" of 8.37%

 

No way can I make these figures add up.

 

If I subtract the accrued interest & the brokerage I get $29,998.64 paid for a note that has a face value of $30,000 at 8.5%. Surely my return is greater than 8.5%??

 

How does this work?What am I missing?

 

Regards

Peter H.