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Hello sir,
I vaguely remember asking you something along the same lines, but please do clarify the concepts once again. 🙂1) Is yield to maturity the same as IRR but without considering the tax effects of the interest?
2) Is gross redemption yield computed in the same way as IRR, but by taking into account only the interest payments and the redemption amount (without considering tax)?
3) How do we compute the Macaulay duration of a bond? Should we discount it at the gross redemption yield or the yield to maturity?
4) What does the yield curve represent- Yield to maturity or gross redemption yield?
5) How do we ascertain the issue price of a bond? Do we discount the interest( gross of tax)and redemption amounts at the gross redemption yield or the yield to maturity?Those surely are a lot of questions, and I would be ecstatic if you clear them. 😀 Thanks in advance sir.
1) Yes – it is the return to the investors, and for them company tax is not relevant.
2) Yes (it is the same as yield to maturity)
3) Same thing 🙂
4) Both (same thing 🙂 )
5) Both (same thing 😉 )
Oh haha :D.
So yield to maturity= gross redemption yield?
But in the Pilot paper question (GNT Co), the cost of the bond has not been considered in computing GRY. Only the interest payments and the final redemption amount have been taken into account. But, in another question on the BPP kit (BPP’s own qn), the intial cost of the bond has also been considered in finding out the yield to maturity figure. That’s why I was a lil bewildered and got fooled into thinking that both the terms mean two different things.I didn’t quite grasp what’s going on in the pilot paper answer. Why have they not considered the initial cost of the bond in calculating the GYR?
And thanks a bunch for all your help! 😀
The yield is always calculated based on the market value (not on the nominal value) and that is what has been done in GNT.
Hello Sir,
Please I still don’t understand your answer to chandhini’s question about why ‘in the Pilot paper question (GNT Co), the cost of the bond has not been considered in computing GRY, but, in another question on the BPP kit (BPP’s own qn), the intial cost of the bond has also been considered in finding out the yield to maturity figure’.
Why was the cost of the bond omitted from GRY computation in the GNT Co question, but included in the yield to maturity computation in another question on the BPP kit (BPP’s own qn), since GRY = YTM?
Please, kindly explain further
Thanks in advance.
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