Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
A cash-flow yield is the discount rate that makes the price of a mortgage-backed or asset-backed security equal to the present value of its cash flows. It is equivalent to the yield to maturity measure. In mortgage-backed and asset-backed securities, because of prepayments, the cash flow is unknown; so some assumption about the prepayment rate must be made to calculate the cash-flow yield.
Different from a normal bond, which typically pays a coupon semi-annually, a mortgage-backed or asset-backed security makes monthly payments. Therefore, the investor has the opportunity to generate greater reinvestment income by reinvesting the monthly cash flows. In a treasury coupon security, bond-equivalent yield can be found out by doubling the semi-annual yield, but because of more frequent payments the same concept cannot be used in calculating the bond-equivalent yield for mortgage-backed and asset-backed securities. The market convention is to calculate a yield so as to make it comparable to the yield to maturity on a bond-equivalent basis. The formula for annualizing the monthly cash flow yield for a monthly pay product is as follows:
Bond-equivalent yield = 2 [(1 + iM)6 - 1]
Where, iM is the monthly interest rate that will equate the present value of the projected monthly cash flow equal to the market price (plus accrued interest) of the security.
Example: If the monthly cash flow yield is 0.8%, then the bond equivalent yield is
2 x [(1.008)6 - 1] = 0.0979 = 9.79%.
Q. What is Cash Flow Criteria? Cash Flow Criteria: - Cash flow criteria are on the basis of cash flows rather than accounting profit. Cash flow methods are separated into two s
Define the term- Cash purchases Shareholders of the target company are bought out completely and have no further stake in business. This is good if predator shareholders want
Suppose the government wants to increase farmers’ incomes. Why do price supports or acreage limitation programs cost society more than simply giving farmers money? Price acrea
Table 1: Politics Stability of the existing government structure National/provincial government r
The issuer offers bonds with an option to the investor to convert these bonds into equity shares at a pre-fixed ratio. These can be fully convertible bonds or partly co
How to compare minimax and maximin with figures and commentary ?
Treasury Notes or T-notes are the securities issued with maturities of more than one year and but not more than 10 years. All these securities are coupon securiti
Capital Asset Pricing Model (CAPM) Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r
Traded investments The term traded investment refers to the buy of an investment asset which is traded in the financial markets. Instance includes government and ordinary share
Divestment of company re-organisations Adisinvestment or divestment is selling part of the business or subsidiary to another third party. Reasons and features for divestme
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd