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Excel 2010: Financial Functions in Depth

YIELD: Calculating the yield of a security that pays periodic interest


From:

Excel 2010: Financial Functions in Depth

with Curt Frye

Video: YIELD: Calculating the yield of a security that pays periodic interest

One straightforward way to calculate the value of a bond is to estimate the bond's yield given the investment's conditions. Those include the price, the 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 and those are the settlement date which is the date that you gain control of the security. Then maturity date which is the date that the investment ends and all money is payable to you. Then there is the percent coupon argument and that argument gives you the interest rate, representing the amount of money that you'll receive for each of your coupon payments.
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  1. 2m 11s
    1. Welcome
      1m 6s
    2. Using the exercise files
      36s
    3. Disclaimer
      29s
  2. 28m 32s
    1. PMT: Calculating a loan payment
      3m 31s
    2. PPMT and IPMT: Calculating principal and interest per loan payment
      4m 18s
    3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
      4m 30s
    4. ISPMT: Calculating interest paid during a specific period
      2m 13s
    5. EFFECT and NOMINAL: Finding nominal and effective interest rates
      3m 31s
    6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
      4m 15s
    7. RATE: Discovering the interest rate of an annuity
      2m 41s
    8. NPER: Calculating the number of periods in an investment
      3m 33s
  3. 19m 5s
    1. SLN: Calculating depreciation using the straight-line method
      1m 48s
    2. DB: Calculating depreciation using the declining balance method
      3m 10s
    3. DDB: Calculating depreciation using the double-declining balance method
      3m 20s
    4. SYD: Calculating depreciation for a specified period
      2m 13s
    5. VDB: Calculating declining balance depreciation for a partial period
      3m 24s
    6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
      2m 27s
    7. AMORLINC: Calculating depreciation for each accounting period
      2m 43s
  4. 22m 33s
    1. FV: Calculating the future value of an investment
      2m 48s
    2. FVSCHEDULE: Calculating the future value of an investment with variable returns
      2m 21s
    3. PV: Calculating the present value of an investment
      2m 6s
    4. NPV: Calculating the net present value of an investment
      3m 17s
    5. IRR: Calculating internal rate of return
      2m 33s
    6. XNPV: Calculating net present value given irregular inputs
      2m 32s
    7. XIRR: Calculating internal rate of return for irregular cash flows
      1m 48s
    8. MIRR: Calculating internal rate of return for mixed cash flows
      2m 2s
    9. DISC: Calculating the discount rate of a security
      3m 6s
  5. 24m 12s
    1. COUPDAYBS: Calculating total days between coupon beginning and settlement
      3m 2s
    2. COUPDAYS: Calculating days in the settlement date's coupon period
      2m 48s
    3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
      3m 1s
    4. COUPNCD: Calculating the next coupon date after the settlement date
      2m 43s
    5. COUPNUM: Calculating the number of coupons between settlement and maturity
      2m 55s
    6. COUPPCD: Calculating the date of a coupon due immediately before settlement
      3m 4s
    7. DURATION: Calculating the annual duration of a security
      3m 20s
    8. MDURATION: Calculating the duration of a security using the modified Macauley method
      3m 19s
  6. 28m 43s
    1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
      2m 36s
    2. INTRATE: Calculating the interest rate of a fully invested security
      2m 50s
    3. RECEIVED: Calculating the value at maturity of a fully invested security
      2m 46s
    4. PRICE: Calculating the price of a security that pays periodic interest
      3m 19s
    5. PRICEDISC: Calculating the price of a discounted security
      2m 48s
    6. PRICEMAT: Calculating the price of a security that pays interest at maturity
      1m 57s
    7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
      1m 50s
    8. TBILLPRICE: Calculating the price for a Treasury bill
      1m 31s
    9. TBILLYIELD: Calculating the yield of a Treasury bill
      1m 41s
    10. YIELD: Calculating the yield of a security that pays periodic interest
      2m 59s
    11. YIELDDISC: Calculating the annual yield for a discounted security
      2m 9s
    12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
      2m 17s
  7. 12m 1s
    1. ODDFPRICE: Calculating the price of a security with an odd first period
      3m 17s
    2. ODDFYIELD: Calculating the yield of a security with an odd first period
      3m 3s
    3. ODDLPRICE: Calculating the price of a security with an odd last period
      2m 44s
    4. ODDLYIELD: Calculating the yield of a security with an odd last period
      2m 57s
  8. 1m 5s
    1. Additional resources
      1m 5s

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Excel 2010: Financial Functions in Depth
2h 18m Intermediate Jun 28, 2011

Viewers: in countries Watching now:

In this course, author Curt Frye shows how to perform a wide range of financial calculations quickly and easily using the many financial functions found in Excel 2010. The course details dozens of functions for evaluating cash flows; calculating depreciation; determining rates of return, bond coupon dates, and security durations; and more.

Topics include:
  • Analyzing loans, payments, and interest
  • Discovering the interest rate of an annuity
  • Determining depreciation using the straight line, declining balance, double-declining balance, and other methods
  • Calculating the future value of an investment with variable returns
  • Finding the discount rate of a security
  • Converting between fractional prices and decimal prices
  • Determining the yield of securities that pay interest periodically
Subjects:
Business Finance
Software:
Excel Office
Author:
Curt Frye

YIELD: Calculating the yield of a security that pays periodic interest

One straightforward way to calculate the value of a bond is to estimate the bond's yield given the investment's conditions. Those include the price, the 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 and those are the settlement date which is the date that you gain control of the security. Then maturity date which is the date that the investment ends and all money is payable to you. Then there is the percent coupon argument and that argument gives you the interest rate, representing the amount of money that you'll receive for each of your coupon payments.

Next is the price and this is the price per $100 that you have to pay to gain the security. Then you have the redemption value which is the base value that you get in return for your $100 investment. Your redemption value is almost always $100 and the reason that is, is because you're receiving coupon interest and the bond's creators basically don't want to pay you twice. It's not unheard of for you to have a redemption value that's higher than the price, but it is somewhat uncommon. Next we have the frequency and that is the number of coupon payments per year.

It can be 1 which is annual, 2 which is semiannual, or 4 which is quarterly. Then finally, we have the basis and basis is how you count the number of days in a month and a year. Basis number 0, which is what we are using here, is the North American default and that assumes a 30 day month and a 360 day year. If this value were 1, then we would be counting actual days. So a 365 or 360 day year, depending upon when it fell, and also 28 or 29 days in February depending upon a leap year versus a non-leap year.

So with all this information in place we can calculate the yield of this investment. So in cell B11 I'll type in equal sign and then yield, left parentheses and then I can start filling in the cell references for the arguments. So, settlement date is in B3, comma, maturity date B4, comma, the rate B5, and next is the price that's in B6, comma, the redemption value is in B7, comma, the frequency B8, comma, and then the basis in B9 and a right parenthesis because that is my last argument.

Now I'll just make sure that all of my references look good. They do and I'll press the Tab key. When I do, I see that the yield of this bond is 4.2499% or basically 4.25%. The YIELD function provides a simplified look at bonds. The function assumes the bond interest rates 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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