What is the yield of equivalent links?
The yield of the equivalent bond is basically by renewing the yield to the debt tool, taking into account several factors that relate to interest on the asset. The yields of equivalent bonds are created as a means of creating a comparison with the interest of securing the coupon.
The basic detail that is necessary to start the process of determining the equivalent yield of the binding is quite simple. The purchase price for a thousand shares is divided into the purchase price. This number is multiplied by a number that represents the number of days up to maturity, which is divided by the number of days in the considered period. The period of time may be monthly, quarterly, half -year or annually.
It is important to realize that for the purpose of the yield of the equivalent bond, which is determined by this formula, it must be compared with certainty, which also has the same period of time. As an example, if the yield of equivalent bonds is calculated by means of a time and time period of one year, then the safety used for comparison must also be an annual nature.It should be noted, however, that the formula for the yield of the equivalent bond allows you to compare securities with fixed income, whose payments are not annual with certainty, which has an annual return. This would require one additional step to add all payments received in one year to create a comparison that is uniform in nature.
The purpose of using the bond of the equivalent return for a given coupon security is to draw conclusions about the level of the debt instrument. In principle, comparison will help the investor know whether the amount of resources that have been invested in the debt tool is likely to provide sufficient interest income to make efforts useful. If the comparison indicated that the debt tool is not a return on the return, which is somewhat in line with what would bring investment from another interest, the investor may decide to sell interest for a debt tool. At this point, the investor may decide thatE of the sale will accept the proceeds and reinves the funds to the company that will show more profitable.