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Current Yield vs. Yield to Maturity at low prices
When comparing Current Yield to YTM (as calculated from the Excel Yield
() function), there are instances when Current Yield YTM for discounted bonds. I can't seem to make sense of this. For example, the Current Yield for a $100 par-valued bond, with a 10% rate, and price of 1 is 10. But using the function Yield(11/1/09, 11/1/11, 10%, 1, 100, 4) gives a YTM of 9.35 I notice this is only happening with extremely low-priced bonds. I don't think there would ever be an instance when YTM < Current Yield, except for bonds purchased at a premium, so could this is a problem with the Yield() function not being accurate at very low prices? |
#2
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Current Yield vs. Yield to Maturity at low prices
YIELD returns 10.04.
"beariebird" wrote: When comparing Current Yield to YTM (as calculated from the Excel Yield () function), there are instances when Current Yield YTM for discounted bonds. I can't seem to make sense of this. For example, the Current Yield for a $100 par-valued bond, with a 10% rate, and price of 1 is 10. But using the function Yield(11/1/09, 11/1/11, 10%, 1, 100, 4) gives a YTM of 9.35 I notice this is only happening with extremely low-priced bonds. I don't think there would ever be an instance when YTM < Current Yield, except for bonds purchased at a premium, so could this is a problem with the Yield() function not being accurate at very low prices? . |
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