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Redemption yield |
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Redemption yieldYield 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 MatchesRedemption feesRedemption feesFees imposed by a mutual fund on shareholders who dispose of shares within a relatively short period after purchase. Redemption statementRedemption statementThe outstanding amount to be repaid on an existing mortgage. Redundancy insurance Another form of income protection, but one that does not cover any form of sickness, injury or disability. The purpose of this type of policy is to replace income lost through a short to medium term period of redundancy. It provides you with a monthly tax-free income to cover a portion of your lost earnings. It is often sold in conjunction with the accident, sickness and disability element of income protection policies, in which case it is known as Accident, Sickness and Unemployment (ASU). Redemption feeRedemption feeA fee some mutual funds charge when an investor sells shares within a specified short period of time. RedemptionRedemptionThe process of canceling a defeasable title to land, such as is created by a mortgage foreclosure or tax sale. Redemption penaltiesRedemption penaltiesCharges paid to the lender in compensation for lost interest if you redeem your mortgage ahead of schedule. During a discount period you will be severely penalised if you try to switch to another product or mortgage provider. Penalties can be stepped just like discounts, and can be particularly severe within the first year. This is to ensure that the costs that the lender endures in setting up the mortgage are always covered. Penalties can be a fixed sum of money, though are often proportion of the loan. With cashback mortgages, you often have to repay the amount of money you received as cashback. Further SuggestionsSerial redemptionExtended redemption penalty Redemption charge redemption price Redemption Overhanging redemption penalty right of redemption Right of redemption redemption date redemption Redemption price gross redemption yield Mandatory redemption schedule Redemption cushion Redemption penalty overhang Preferred equity redemption stock (PERC) Redemption Period Redemption Redemption date |
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