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The bond related formulas and functions in the previous chapters assume that every period is of the same length. For example, that coupon payments occur every 3, 6 or 12 months. Some bonds have irregular first or last periods though, which means that the payments dates don't fit any of those patterns. For those securities Excel includes a set of functions you can use to evaluate them. In this movie, I'll show you how to calculate the yield of a security with an odd, meaning unusual, last period. To make that calculation, the first thing we need to no know is the settlement date and that that is the date that you take possession of the security.
Next we have the maturity date and that is the last day of the investment, when all principle and any other proceeds are returned to you. The last interest date is the last day that any interests through coupons are paid to you. The rate is the annual percentage rate of the investment. Then we have the price which is the price per $100 of face value that you pay. Now in this case the price is more than the face value, but remember that you're also receiving interest as part of your investment. Next is the redemption value.
That's also per $100 of face value and it's almost always going to be 100. Next we have frequency and frequency is the number of times that you are given coupon interest per year. The value can either be one, meaning annual payments, two for semi-annual, or four for quarterly. In this case, we have two so we're getting interest every six months. And then, finally is basis and basis refers to how you count the number of days in a month and year. The North American standard is for a 30 day month and a 360 day year.
However in this case reason option one which is actual and that means that you count every day in the year, differentiating between regular years and leap years. So for example, in a regular year February has 28 days while in a leap year it has 29. So with all that information in place we can create our formula. So I'll click in cell C13, type an equal sign, and then type in the name of the function that I'm going to use and that is odd, l for last, yield.
So we have odd meaning unusual, l for last period, and then yield because we are calculating the yield. Type a left parenthesis and now we can start filling in the cell references for the arguments. First is the settlement date. That's in C3, comma, maturity date C4, comma, the last interest date is C5, comma, the rate is in C6, comma, price is in C7, comma, redemption value C8, comma, frequency is in C9, comma, and the basis is in C10.
Then type a right parenthesis to close out the function and press Tab. When we do that the yield is 5.7 on this investment. So when you want to calculate the yield the of a bond with an odd, meaning unusual, last period, use the oddlyield function.
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