Ask Yield example, little

whew1110

I'm a little bit lost as to how to calculate Ask Yield, I tried googling to no avail.

So here is an example

http://online.wsj.com/mdc/public/page/2_3020-treasury.html#treasuryA

On here the June 2018 maturity Treasuries we see:

Maturity Coupon Bid Asked Chg Asked Yield
6/30/2018 2.375 101.8750 101.9219 0.9688 2.075


How is the last column determined?

Muddahudda

yield based off the ask price

Swanand

How though? If we divide the coupon 2.375 by the ask price 101.9219 we get 2.330, rather than their value of 2.075.

Carson

I was going to leave a sarcastice response but I felt sorry for you, answer is below:

Asked yield is the Yield to Maturity assuming the bond is bought at the Ask price;
So you would use your BAII plus calculator and calculate the YTM as follows:

N = 6.917 (assuming the above purchase date is today)
PV = -101.9219
PMT = 2.375
FV = 100 (assuming par value of 100)
I/Y = calc (2.074)

Or you could just use excel

But seriously, this is a fundamental concept; make sure you get this.

dirk01

Also, you'll have to adjust the calculation above for monthly, semi-annual, etc. coupon payments.

jarobi04

Palantir,
To add to what Zesty said, when you calculate the yield to maturity you have to factor in the coupon payments, the reinvestment of those coupons, as well as the payment of principal at the maturity. That's why it's not as simple as just dividing the coupon by the price.

ruchita

Great, thanks for your help, definitely forgot about YTM v current yield.