주식투자/Buffett's Books Academy
8. How do you value a bond and yield to maturity?
plzfday
2024. 7. 5. 18:18
Simple Interest
Simple interest = # of coupons * coupon payment
$1,500 = 60 * $25
Coupon yield is set when a bond is issued. It is the annual coupon divided by the par value.
Coupon Yield = 1 year coupon payments / Par Value
5% = $50 / $1,000
Compound Interest
Compound interest is a return when you keep reinvesting the coupon every time you the money.
Current Yield
Current Yield is the annual coupon divided the price.
| Case 1 | Case 2 | Case 3 |
|---|---|---|
| Coupon: $50 | Coupon: $50 | Coupon: $50 |
| Price: $ 1200 | Price: $ 1000 | Price: $ 800 |
| Current Yield = 4.2% | Current Yield = 5% | Current Yield = 6.3% |
The downside of current yield is that it doesn't account for maturity.
Yield to Maturity
Compensating the weakness of current yield.
Market Price at 15 years
| $800 | $1000 | $1200 | |
|---|---|---|---|
| Coupon Yield | 5% | 5% | 5% |
| Current Yield | 6.3% | 5% | 4.2% |
| Yield to Maturity | 7.2% | 5% | 3.3% |