How do I calculate YTM? I need to calculate it for this sort of bond:
A 10yr $1000 bond w/ a 5% annual coupon is selling for $784.36. The
current prime rate is 8.25% (I'm using the prime rate to calculate the
bond's clean price). It's Macauly duration is 7.82yrs. It's current
yield is 6.37%.
How would I calculate it's YTM and it's convexity? What does duration
and convexity actually mean? Thanks!!!! Also, why is duration in years
instead of percent?
Don't you mean "Macaulay"?
If you need help with your exercises, ask your teacher, that's what he's
paid for. Of course, it would help if you paid more attention in class.
Duration comes from the Latin. Not from the adjective meaning "hard"
(as in "not soft" and "durum wheat semolina", not as in "difficult"),
but from the verb meaning "to last"; the word "during" has the same root.
So duration means how long something lasts. Why would you want to
measure that in percent?
There is no apostrophe in "its" unless you want it to mean "it is".
FIY, this is not homework. I'm buying bonds and I need to know this
stuff. And, why wouldn't duration be measured in percent, it's the
amount a bond's price would change if there was a 1% change in yield.
And why, when you multiply the coupon pmt by the duration, you get
something less than the price, b/c isn't duration the amount of time it
takes for the bond's price to be repaid?
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