Yield to put, Financial Management

Assignment Help:

Yield to put is the rate at which the present value of cash flow to the first put date is equal to the price plus interest rate. It is used for putable security. It is also similar to yield to call. The assumptions under the yield to put calculation are:

  • Any interim coupon payment can be reinvested at the yield calculated.

  • The bond will put on the first put date.

For example, assume a Rs.100 par value, 7% 5-year bond is selling for Rs.104.66 and putable at par at the end of three years. If the bond is put at the end of three years then the cash flow will be like this:

Table 1: Showing Cash Flows in Different Year

Year

Receipts

Total Receipts in the Year Rs.

1st year

Two coupons of Rs.3.50 each

7

2nd year

Two coupons of Rs.3.50 each

7

3rd year

Two coupons of Rs.3.50 each + put price 100.00

107

The present value for interest rates is shown in table 6. It is very clear from the table that 5.30% annual rate makes the present value of the cash flow equal the price of Rs.104.66. So 5.30% is the yield to put.

Table 2

Annual Interest Rate (%)

Semiannual Interest Rate (%)

Summated PV of 6 Cash Flow Payments of Rs.3.50 each (Rs.)

PV of Rs.100.00
(Rs.)

PV of
Cash Flow (Rs.)

4.90

2.45

19.3107

86.48

105.79

5.10

2.55

19.2462

85.98

105.22

5.20

2.60

19.2141

85.73

104.94

5.30

2.65

19.1821

85.48

104.66                                          


Related Discussions:- Yield to put

Define the price and earning ratio valuation method, Define the P/E valuati...

Define the P/E valuation method. Under what circumstances should a stock be valued using this method? The P/E ratio points out how much investor are willing to pay for each dol

Describe about self-employment tax, Q. Describe about Self-Employment Tax? ...

Q. Describe about Self-Employment Tax? Self-Employment Tax - Most individuals who are in business for themselves, like PARTNERS, SOLE PROPRIETORS or independent contractor ar

Specialized stock indexes, Specialized Stock Indexes The most regularly...

Specialized Stock Indexes The most regularly quoted market indices are those that include the stocks of the largest listed companies on a nation's largest stock exchange. Examp

Explain the costs and benefits of being a remote island, Problem: 1.1 C...

Problem: 1.1 Clearly explain the costs and benefits of being a small and remote island or a ministate economy. 1.2 Over the years, the role of government has been defined al

Capital investment plans , Report based on Capital Investment Plans   ...

Report based on Capital Investment Plans   To analyze the capital investment plans of Hatsun Agro Products Limited (HAPL) we shall look at the capital expenditure of HAPL in

Calculate the waac, Question 1: You hold a diversified portfolio consi...

Question 1: You hold a diversified portfolio consisting of a Rs.5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.15. You have decided t

What is bid, Bid The price buyers provide to acquire securities or pri...

Bid The price buyers provide to acquire securities or privacy from sellers.

Financial algebra, can you help me subtract checks and balances in financia...

can you help me subtract checks and balances in financial algebra

Duration and convexity of mortgage backed security, Duration an...

Duration and Convexity of MBS A graph decpicting the price of the security under study and the interest rates helps in assessing the duratio

Modern approach, Meaning merits nd demerits of modern approch of financial ...

Meaning merits nd demerits of modern approch of financial management

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd