Par yield: Difference between revisions
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= the fixed coupon rate payable on such a ‘par bond’. | = the fixed coupon rate payable on such a ‘par bond’. | ||
'''Example''' | |||
The par yield for the maturity 0-3 periods is 1.90% per period. | |||
This means that a deposit of £1,000,000 at Time 0 periods would return: | |||
*Interest at a rate of 1.90% per period on the original £1,000,000, at Times 1, 2 and 3 periods, and | |||
*The principal of £1,000,000 at Time 3 periods | |||
The interest payments will be £1,000,000 x 0.019 = £19,000 per period | |||
The total repaid at Time 3 periods will be: principal £1,000,000 + £19,000 interest = £1,019,000. | |||
An application of par yields is the pricing of new coupon paying bonds. | |||
The par yield is known as the Par rate, Swap rate or Swap yield. | |||
== See also == | == See also == | ||
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* [[Bootstrap]] | * [[Bootstrap]] | ||
* [[Coupon bond]] | * [[Coupon bond]] | ||
* [[Forward yield]] | |||
* [[Market yield]] | * [[Market yield]] | ||
* [[Par]] | * [[Par]] | ||
* [[Swap spread]] | * [[Swap spread]] | ||
* [[Yield curve]] | * [[Yield curve]] | ||
* [[Zero coupon yield]] | |||
Revision as of 12:28, 11 November 2015
Today’s market yield on a coupon bond trading at par and redeemable at par
= the fixed coupon rate payable on such a ‘par bond’.
Example
The par yield for the maturity 0-3 periods is 1.90% per period.
This means that a deposit of £1,000,000 at Time 0 periods would return:
- Interest at a rate of 1.90% per period on the original £1,000,000, at Times 1, 2 and 3 periods, and
- The principal of £1,000,000 at Time 3 periods
The interest payments will be £1,000,000 x 0.019 = £19,000 per period
The total repaid at Time 3 periods will be: principal £1,000,000 + £19,000 interest = £1,019,000.
An application of par yields is the pricing of new coupon paying bonds.
The par yield is known as the Par rate, Swap rate or Swap yield.
