标题: Bonds - YTM and Compound Returns [打印本页] 作者: SWASH 时间: 2011-7-13 16:05 标题: Bonds - YTM and Compound Returns
If the TIM equals the actual compound return an investor realizes on an investment in a coupo.n bond purchased at a premium to par, it is least likely that:
Answer: the bond will not be sold at a capital loss.
Can anyone explain?作者: ajpheif16 时间: 2011-7-13 16:05
what is TIM?作者: thisisbrianly 时间: 2011-7-13 16:05
YTM - Yield to maturity.
sorry作者: pacmandefense 时间: 2011-7-13 16:05
When you invest in a coupon paying bond, your sources of earnings are:
1. Your periodic coupon payments
2. Interest income on re-investing these periodic coupon payments into some other asset.
3. Capital gain when you sell the bond.
Now, in this case, since you have purchased the bond at a premium, means that coupon rate of the bond is higher than market (risk adjusted) interest rate.
So, from the list of earnings above, you will have higher earnings from component 1 and 2. And to keep the yield same as that from another similar investment, component 3 has to come down. So, it is MOST LIKELY you WILL HAVE CAPITAL LOSS, when you sell it.
Edit: So, it is LEAST LIKELY that bond will NOT be sold at Capital Loss.
Hope this helps.
Edited 1 time(s). Last edit at Thursday, September 24, 2009 at 03:56AM by rus1bus.作者: mnieman 时间: 2011-7-13 16:05
rus1bus, can give an example(with numbers) so that we can have a better picture...
THanks!!作者: leadcfa 时间: 2011-7-13 16:05
rus1bus,
this is a great explanation. I will owe my CFA designation to you hahaha.作者: ramdabom 时间: 2011-7-13 16:05
haha.. that way, if I dont get my designation, atleast I will have solace that you got it for yourself
