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Calculating a bond's yield

From: Excel 2007: Financial Analysis

Video: Calculating a bond's yield

One straightforward way to calculate the value of a bond is to estimate the bond's yield given the investments condition such as price, coupon rate, and time to maturity. In Excel, you can calculate a bond's yield perhaps not surprisingly by using the YIELD function. The YIELD function has seven arguments, Settlement Date, Maturity Date, Percent Coupon which is listed here as its rate, Price, Redemption Value, Frequency, and Basis. The Settlement Date is the date that you gain ownership of the security.

Calculating a bond's yield

One straightforward way to calculate the value of a bond is to estimate the bond's yield given the investments condition such as price, coupon rate, and time to maturity. In Excel, you can calculate a bond's yield perhaps not surprisingly by using the YIELD function. The YIELD function has seven arguments, Settlement Date, Maturity Date, Percent Coupon which is listed here as its rate, Price, Redemption Value, Frequency, and Basis. The Settlement Date is the date that you gain ownership of the security.

That date will probably be different from the bond's issuance date, which is the date the bond is made available for sale. The Maturity Date is the date the bond will be paid off. Percent Coupon is the bond's interest rate. Price is the amount you paid for $100 of face value. Redemption is the bond's redemption value for $100 of face value that's most commonly $100. Frequency is the number of interest or coupon payments per year. Finally, Basis reflects the way the investment counts the days of year. The western calendar can have days of 28, 29, 30, or 31 days and years of either 365 or 366 days.

So many investments base their calculations on a year that is presumed to have 12 months of 30 days each for a 360 day year. The Excel help system describes the other options available including the European 3360 systems, which is slightly different from the US system. So to complete the formula using the values that we find in the Yield worksheet. The Settlement Date is in cell B3, Maturity Date is in cell B4, Percent Coupon is in cell B5, the Price is in cell B6.

The Redemption Value is in cell B7, Frequency is in cell B8 and the Basis, which will add but we don't have to, it's an optional argument and we are using the default of 0, but we'll just complete the formula, is in B9. Close the parenthesis and you see that this bond has an annual Yield of 4.88%. The YIELD function provides a simplified look at bonds. The function assumes the bond's interest rate stays constant, which almost never happens, that you reinvest your bond interest and that there are no delays in getting paid when the bond matures.

Even so the YIELD function provides a good first look at a bond's potential value.

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This video is part of

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Excel 2007: Financial Analysis

51 video lessons · 13631 viewers

Curt Frye
Author

 
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  1. 2m 6s
    1. Welcome
      1m 8s
    2. Using the exercise files
      32s
    3. Disclaimer
      26s
  2. 13m 20s
    1. Separating inputs and formulas
      2m 2s
    2. Avoiding common mistakes
      5m 39s
    3. Tracing formula precedents and dependents
      2m 52s
    4. Evaluating Excel formulas step by step
      2m 47s
  3. 18m 40s
    1. Tracking income and expenses using an Excel table
      3m 29s
    2. Creating a Pivot Table from table data
      3m 36s
    3. Pivoting a Pivot Table
      2m 22s
    4. Filtering a Pivot Table
      3m 11s
    5. Adding Pivot Table columns to enhance data analysis
      3m 5s
    6. Tracking cash flow using a Pivot Chart
      2m 57s
  4. 18m 48s
    1. Reading a corporate financial statement
      6m 1s
    2. Introducing common-sizing strategies for analyzing financial statements
      3m 59s
    3. Creating common-sized income statements
      3m 1s
    4. Creating common-sized balance sheets
      2m 53s
    5. Calculating percentage changes in financial statements
      2m 54s
  5. 8m 12s
    1. Calculating earnings per share
      1m 54s
    2. Calculating return on equity and return on assets
      2m 50s
    3. Calculating gross profit margin and net profit margin
      3m 28s
  6. 6m 19s
    1. Calculating the current ratio and quick ratio
      2m 47s
    2. Calculating the average collection period
      1m 56s
    3. Calculating inventory turnover
      1m 36s
  7. 6m 12s
    1. Calculating the equity ratio
      1m 26s
    2. Calculating the debt ratio
      2m 57s
    3. Calculating the times interest earned ratio
      1m 49s
  8. 10m 58s
    1. Calculating simple interest and compound interest
      3m 36s
    2. Applying nominal versus effective interest rates (APR versus APY)
      3m 21s
    3. Calculating the number of days between events
      4m 1s
  9. 13m 32s
    1. Computing the future value of an investment
      3m 30s
    2. Calculating present value
      2m 29s
    3. Calculating net present value
      2m 42s
    4. Calculating internal rate of return
      2m 24s
    5. Calculating NPV and IRR for uneven input periods (XNPV and XIRR)
      2m 27s
  10. 7m 30s
    1. Projecting future results using the Forecast function
      2m 9s
    2. Performing quick forecasts using the Fill handle
      2m 57s
    3. Adding a trendline to a chart
      2m 24s
  11. 22m 28s
    1. Introducing amortization
      2m 20s
    2. Calculating payments on a fully amortized loan
      2m 21s
    3. Calculating payments on a partially amortized loan (balloon payments)
      2m 4s
    4. Calculating interest and principal components of loan repayments
      5m 32s
    5. Introducing depreciation
      2m 1s
    6. Calculating straight line depreciation
      1m 30s
    7. Calculating declining balance depreciation
      3m 24s
    8. Calculating double declining balance depreciation
      3m 16s
  12. 9m 34s
    1. Introducing bonds and bond terminology
      1m 37s
    2. Calculating a bond's yield
      2m 15s
    3. Calculating the value of zero coupon bonds
      3m 18s
    4. Pricing bonds to be offered to investors
      2m 24s
  13. 23s
    1. Goodbye
      23s

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