Overshooting and Par yield: Difference between pages

Revision as of 12:36, 11 November 2015

Today’s market yield on a coupon paying 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.

@@ Line 1: / Line 1: @@
-''Technical analysis.''
+Today’s market yield on a coupon paying bond trading at par and redeemable at par
+= the fixed coupon rate payable on such a ‘par bond’.
-Overshooting is the tendency of markets to overreact to news, good or bad.
-Therefore the market price would also tend to go up or down by more than is justified by the news.
+'''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 ==
-* [[Market price]]
+* [[Bond]]
-* [[Technical analysis]]
+* [[Bootstrap]]
+* [[Coupon bond]]
-[[Category:Corporate_financial_management]]
+* [[Forward yield]]
+* [[Market yield]]
+* [[Par]]
+* [[Swap spread]]
+* [[Yield curve]]
+* [[Zero coupon yield]]