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

#title Find the NPV of 2 Projects, Woody Construction is considering a new ...

Woody Construction is considering a new 3 year expansion project that requires an initial fixed asset investment

Cyclical variation in time series analysis, Cyclical Variation By cycli...

Cyclical Variation By cyclical variations, we refer to the long-term movement of the variable about the trend line. Therefore, does the movement of the actual series about a tr

What do you mean by letter of credit, Q. What do you mean by Letter of Cred...

Q. What do you mean by Letter of Credit? A letter of credit is an arrangement whereby a bank helps its customer to obtain credit from its (customer's) suppliers. When a bank op

Stock price calculations, I need help working through this problem. What is...

I need help working through this problem. What is the stock price of Firm X when provided the following information? Beta – 1.42 MRP – 10% Rf – 3% G – 4% Dividend next period-

Assets allocation, Assets Allocation: The investment pattern above shou...

Assets Allocation: The investment pattern above should be followed as under: Fresh accretions to the fund and redemption amounts of investments made earlier should be inv

Definition of financial management, Q. Definition of Financial Management? ...

Q. Definition of Financial Management? As-per to Joseph L. Massie 'Financial management is the operational activity of a business that is responsible for obtaining as well as e

Incremental policy model to the policy making process, Question 1: Poli...

Question 1: Policy implementation is the most critical stage of the policy process. Critically analyse some of the main constraints that hinder the implementation of public pol

Weighted average cost of capital, Q. Weighted Average cost of Capital? ...

Q. Weighted Average cost of Capital? When the company capital structure is made from equity share capital , debenture and Preference share capital , then we calculated the comb

Explain the term stakeholders, Explain the term StakeHolders The range ...

Explain the term StakeHolders The range of stakeholders may comprise directors/managers, lenders, shareholders, employees suppliers and customers. These groups are probable to

How can we estimate that firm is going to benefit, Ho can we estimate that ...

Ho can we estimate that firm is going to benefit from projec To calculate how firm is going to benefit from project we need to calculate whether firm is earning the required ra

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