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%.
Issuer's Considerations Cash Flows: Issuers may consider the period for which the funds are required and try to spread the borrowings in a way to minimize the costs. Generally,
What is the essential condition for a fixed-for-floating interest rate swap to be possible? For a fixed-for-floating interest rate swap to be feasible it is essential for a quali
What is the primary advantage to a corporation of investing some of its funds in working capital? By investing in working capital a firm acquires the liquidity it needs helpin
The price charged when one segment of an organization provides goods or services to another segment of the organization.
Based on the period involved in repayment of the debt obligations, the debt instruments could be classified into long-/medium-/short-term debt instruments.
Q. Explain Accept-Reject Criteria? Accept-Reject Criteria:- If actual ARR is elevated than the predetermined rate of return .......................Project would be accep
QTL Tech has an issue of preferred shares outstanding with a $50 stated value that pays a dividend of 7.5%. There are 325,000 shares outstanding. QTL has not paid preferred share d
Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into variou
CAPITAL STRUCTURE DEFINITION According to Gerstenberg, Capital structure refers to 'the makeup of a firm's capitalisation'. In other way, it signifies the mix of different sou
Cash Flow Statement Ratios: This ratio, which is defined as a percentage, compares a company's operating cash flow to its total sales or revenues, which provide investors an i
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