Par yield: Difference between revisions

From ACT Wiki
Jump to navigationJump to search
imported>Kmacharla
No edit summary
imported>Doug Williamson
(Link with related yield pages and add example.)
Line 3: Line 3:
= the fixed coupon rate payable on such a ‘par bond’.
= the fixed coupon rate payable on such a ‘par bond’.


Also known as Par rate, Swap rate or Swap yield.
 
'''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 ==
Line 9: Line 29:
* [[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.


See also