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

Redemption

The process of canceling a defeasable title to land, such as is created by a mortgage foreclosure or tax sale.


Redemption

Redemption

Repayment of a debt security or preferred stock issue, at or before maturity, at par or at a premium price.


Redemption price

Redemption price

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


Redemption fee

Redemption fee

A fee some mutual funds charge when an investor sells shares within a specified short period of time.


Redemption cushion

Redemption cushion

The percentage by which the conversion value of a convertible security exceeds the redemption price (strike price).


Further Suggestions

Preferred equity redemption stock (PERC)
Redemption
redemption fees
Redemption statement
Mandatory redemption schedule
redemption
Extended redemption penalty
Overhanging redemption penalty
redemption date
gross redemption yield
Redemption penalty overhang
Serial redemption
Redemption charge
Right of redemption
right of redemption
Redemption penalties
Redemption Period
Redemption price
Redemption date


 
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