zeroyield

Yield of zero-coupon instruments given price

Description

example

Yield = zeroyield(Price,Settle,Maturity) computes the yield of zero-coupon instruments given price. zeroyield calculates the bond-equivalent yield for a portfolio of general short and long-term zero-coupon instruments given the price of the instruments. In other words, if the zero-coupon computed with this yield is used to discount the reference bond, the value of that reference bond is equal to its price

example

Yield = zeroyield(___,Period,Basis,EndMonthRule) adds optional arguments for Period, Basis, and EndMonthRule.

Examples

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This example shows how to compute the yield of a short-term zero-coupon instrument.

Settle   = '24-Jun-1993';
Maturity = '1-Nov-1993';
Basis    = 0;
Price    = 95;

Yield = zeroyield(Price, Settle, Maturity, [], Basis)
Yield = 0.1490

This example shows how to compute the yield of a short-term zero-coupon instrument using a day-count basis of 30/360 (SIA).

Settle   = '24-Jun-1993';
Maturity = '1-Nov-1993';
Basis    = 1;
Price    = 95;

Yield = zeroyield(Price, Settle, Maturity, [], Basis)
Yield = 0.1492

This example shows how to compute the yield of a long-term zero-coupon instrument.

Settle   = '24-Jun-1993';
Maturity = '15-Jan-2024';
Basis    = 0;
Price    = 9;

Yield = zeroyield(Price, Settle, Maturity, [], Basis)
Yield = 0.0804

Input Arguments

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Reference bond price, specified as a scalar or a NZERO-by-1 vector.

Data Types: double

Settlement date, specified as a NZERO-by-1 vector of serial date numbers.

Data Types: double

Maturity date, specified as a NZERO-by-1 vector of serial date numbers.

Data Types: double

(Optional) Number of coupons in one year, specified as a positive integer for the values 1,2,4,6,12 in a NZERO-by-1 vector.

Data Types: double

(Optional) Day-count basis of the bond, specified as a positive integer using a NZERO-by-1 vector.

  • 0 = actual/actual

  • 1 = 30/360 (SIA)

  • 2 = actual/360

  • 3 = actual/365

  • 4 = 30/360 (PSA)

  • 5 = 30/360 (ISDA)

  • 6 = 30/360 (European)

  • 7 = actual/365 (Japanese)

  • 8 = actual/actual (ICMA)

  • 9 = actual/360 (ICMA)

  • 10 = actual/365 (ICMA)

  • 11 = 30/360E (ICMA)

  • 12 = actual/365 (ISDA)

  • 13 = BUS/252

For more information, see Basis.

Note

When the Maturity date is fewer than 182 days away and the Basis is actual/365, the zeroyield uses a simple-interest algorithm. If Maturity is more than 182 days away, zeroyield uses present value calculations.

When the Basis is actual/360, the simple interest algorithm gives the money-market yield for short (1–6 months to maturity) Treasury bills.

Data Types: double

(Optional) End-of-month rule flag, specified as a nonnegative integer with a value of 0 or 1 using a NZERO-by-1 vector. This rule applies only when Maturity is an end-of-month date for a month having 30 or fewer days.

  • 0 = Ignore rule, meaning that a bond coupon payment date is always the same numerical day of the month.

  • 1 = Set rule on, meaning that a bond coupon payment date is always the last actual day of the month.

Data Types: double

Output Arguments

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Bond-equivalent yield for each zero-coupon instrument, returned as a column vector.

Algorithms

To compute the yield when there is zero or one quasi-coupon period to redemption, zeroyield uses the formula

Yield=(RVPP)×(M×EDSR)

.

Quasi-coupon periods are the coupon periods which would exist if the bond was paying interest at a rate other than zero. The first term calculates the yield on invested dollars. The second term converts this yield to a per annum basis.

When there is more than one quasi-coupon period to the redemption date, zeroyield uses the formula

Yield=((RVP)1Nq1+DSCE1)×M

The elements of the equations are defined as follows.

VariableDefinition

DSC

Number of days from the settlement date to next quasi-coupon date as if the security paid periodic interest.

DSR

Number of days from the settlement date to redemption date (call date, put date, and so on).

E

Number of days in quasi-coupon period.

M

Number of quasi-coupon periods per year (standard for the particular security involved).

Nq

Number of quasi-coupon periods between the settlement date and redemption date. If this number contains a fractional part, raise it to the next whole number.

P

Dollar price per $100 par value.

RV

Redemption value.

Yield

Annual yield (decimal) when held to redemption.

References

[1] Mayle, Jan. Standard Securities Calculation Methods. 3rd Edition, Vol. 1, Securities Industry Association, Inc., New York, 1993, ISBN 1-882936-01-9. Vol. 2, 1994, ISBN 1-882936-02-7.

Introduced before R2006a