Par and Par yield: Difference between pages
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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’. | |||
<span style="color:#4B0082">'''Example'''</span> | |||
The par yield for the maturity 0-3 periods is 1.90% per period. | |||
2. | This means that a deposit of £1,000,000 at Time 0 periods on these terms 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. | |||
'''Conversion''' | |||
If we know the par yield, we can calculate both the [[zero coupon yield]] and the [[forward yield]] for the same maturities and risk class. | |||
== See also == | == See also == | ||
* [[Coupon | * [[Bond]] | ||
* [[ | * [[Bootstrap]] | ||
* [[ | * [[Coupon bond]] | ||
* [[ | * [[Forward yield]] | ||
* [[ | * [[Market yield]] | ||
* [[ | * [[Par]] | ||
* [[ | * [[Swap spread]] | ||
* [[Yield curve]] | |||
* [[Zero coupon yield]] | |||
* [[Flat yield curve]] | |||
* [[Rising yield curve]] | |||
* [[Falling yield curve]] | |||
* [[Positive yield curve]] | |||
* [[Negative yield curve]] | |||
Revision as of 15:28, 13 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 on these terms 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.
Conversion
If we know the par yield, we can calculate both the zero coupon yield and the forward yield for the same maturities and risk class.
