How do I calculate the yield from the zero coupon?
Zero coupon bond yield is calculated using the equation of the current value and its solution for the discount rate. The resulting rate is a yield. It is both a discount rate that is revealed by the market situation and the return rate that investors expect from the bond. Decree of zero coupon bonds helps investors to decide whether to invest in bonds. Some bonds regularly make payments or coupons, but bonds with zero coupon have only one payment when they ripen. The amount of the payment is called the nominal value or the nominal value of the bond. Investors will decide whether to invest in bonds on the basis of a bond yield or return on the market price. In principle, the bond is a loan provided by the investor and the income is the interest rate the investor receives in return.
There are different concepts that share the name of the yield. For example, the current yield is a coupon payment divided by the market price of a bond. As bonds with zero coupon do not pay anyThe coupons have no current yield. In general, when investors speak of a bond yield, they refer to their revenue against maturity - this is the rate of return that the investor would receive if he re -invest every payment the bond made. For most bonds, the measure is somewhat unrealistic, because investors do not always reinvest coupons at an optimal rate; However, the income from the zero coupon is more accurate because there is no assumption of reinvestment.
Generally calculate the return to the maturity by writing the formula of the current value for the binding using variables, y, instead of a discount rate. Then connect the yield values to see if the current value corresponds to the actual market price. You will adjust the yield value if not. This process has poured guessing and check. This method is also used by calculators that will find a yield to maturity; They simply iteral.
4 is given by the price = (nominal value)/(1 + Y)