When you’re offered a discounted security, you might know everything about the investment except for its annual yield. If so, you can find that yield by using the YIELDDISC function. Finding a discounted security’s yield lets you compare it to other potential investments, which helps you make sound investment decisions.
- [Instructor] When you are offered a discounted security,…you might know everything about the investment…except for its annual yield.…If so, you can find that yield…by using the YIELDDISC function.…I'll demonstrate how to perform this calculation.…I will use the DiscountedSecurityYield_05_11 workbook…which you can find in the chapter five folder…of your exercise files collection.…You need to know five pieces of information…to find the yield on a discounted security.…The first is the settlement date,…that's the date that you take possession…of the bond or other security.…
Next is the maturity date,…that's the date when the investment is paid off.…Next is the price,…that is the amount you are asked to pay…for a particular redemption value.…So in this case, you're paying $88.75…to receive $100 in return.…And finally, basis is how Excel looks at the calendar,…and I'll give you more information on that in a moment.…Let's go ahead and create our calculation.…I'll click in cell C9,…type an = sign,…and the function is YIELDDISC…
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- Recall what the type argument is used to determine when using the PMT function.
- Identify what the M stands for in the ACCRINTM function.
- Name the accounting rules used by the AMORDEGRC function to assign a depreciation coefficient to an asset.
- Recall what internal rate of return generated by the IRR function should be measured against to determine if it is a good investment.
- List the three regular intervals that coupon bonds pay interest at.
- Determine the function that provides a more conservative bond evaluation compared to the DURATION function.
- Explain what the RECEIVED function shows.
Skill Level Intermediate
1. Analyzing Loans, Payments, and Interest
2. Calculating Depreciation
3. Determining Values and Rates of Return
4. Calculating Bond Coupon Dates and Security Durations
5. Calculating Security Prices and Yields
6. Analyzing Simulation Results
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