Redemption yield

 

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Redemption yield

Yield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:Nominal YieldThis is calculated by dividing the annual income on the bond by its nominal or 'par' value. So the nominal yield on a 100 bond which pays 5% interest per year is 5/100 x 100 = 5%.Current or 'Running Yield'This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the 100 bond dropped to 95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. Note that as the market price of a bond drops, its yield goes up.Redemption Yield'The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.36%) and the capital yield (1.05%) = 6.41%.



Similar Matches

Redemption price

Redemption price

The price at which a bond or preferred stock can be redeemed by the issuer.


Redemption charge

Redemption charge

The commission a mutual fund charges an investor who is redeeming shares. For example, a 2% redemption charge (also called a back end load) on the sale of shares valued at $1000 will result in payment of $980 (or 98% of the value) to the investor. This charge may decline or be eliminated as shares are held for longer time periods.


Mandatory redemption schedule

Mandatory redemption schedule

Schedule according to which bond sinking fund payments must be made.


Redemption date

Redemption date

The actual date on which repayment of a bond or loan stock takes place.


Right of redemption

Right of redemption

The right to recover property forfeited by foreclosure by paying the outstanding principal owed plus interest.


Further Suggestions

Redemption price
Serial redemption
gross redemption yield
Redemption penalties
Redemption date
Redemption statement
Redemption Period
Redemption penalty overhang
Redemption
Redemption
Overhanging redemption penalty
Redemption fee
Right of redemption
redemption fees
Extended redemption penalty
redemption
Preferred equity redemption stock (PERC)
Redemption
Redemption cushion


 
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