YIELD TO MATURITY

$ 1,000.00

Market price of bond

Bond cash
flow

Year
0
1
2
3
4
5
6
7

$ (1,000.00)
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$ 1,070.00
7.00%

YTM of bond

VALUING THE XYZ CORPORATION BONDS

6.50%

Market interest rate

Year

Bond cash
flow

1
2
3
4
5
6
7

$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$ 1,070.00
$1,027.42

Value of the bond

YIELD TO MATURITY

Four uneven date

spacing
$ 1,050.00

Market price of bond

Date

Bond cash
flow

5/15/2001

$ (1,050.00)

12/15/2001
12/15/2002
12/15/2003
12/15/2004
12/15/2005
12/15/2006
12/15/2007

$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$ 1,070.00
6.58%

YTM of bond

YTM WITH SEMIANNUAL COUPON PAYMENTS

$ 1,000.00

Market price of bond

Period

ABC bond
cash flow

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14

$ (1,000.00)
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$ 1,035.00
3.50%

Semiannual IRR

Annualized IRR

This the YTM!

7.12%

ACCURED INTEREST AND YTM COMPUTATIONS

Bond purchase date

3-Apr-01

Previous coupon date

Next coupon date
Coupon payment over the period

15-Dec-00
15-Dec-01
$
70.00

Quoted bond price

Accured interest
Actual bond price paid

$ 1,050.00
$
20.90
$ 1,070.90

Year

Bond cash
flow

3-Apr-01
15-Dec-01
15-Dec-02
15-Dec-03
15-Dec-04
15-Dec-05
15-Dec-06
15-Dec-07

$ (1,070.90)
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$
70.00
$ 1,070.00

YTM of bond, using XIRR

YTM of bond, using Yield

6.06%
6.06%

COMPUTING THE YIELD TO MATURITY (YTM) ON TREASURY

BILLS
Purchase price
$ 9,750.00
Face value
$ 10,000.00
Time to maturity (days)
182
Method 1: Compound the daily return
Daily interest rate
YTM--the annualized rate
Method 2: Calculate the continously compounded return
Continously compunded
Future value in one year using each method
Method 1
Method 2

0.0139%
5.2086%

5.08%

$ 10,257.84
$ 10,257.84

UNITED STATES TREASURY BOND, 6%,

MATURING 15 AUGUST 2009
Face value of bonds bought
$ 1,000.00
Coupon rate
6.00%
Maturity date
8/15/2009
Issue date
8/15/1999
Cash flows to purchaser at bond issue
Date
8/15/1999
2/15/2000
8/15/2000
2/15/2001
8/15/2001
2/15/2002
8/15/2002
2/15/2003
8/15/2003
2/15/2004
8/15/2004
2/15/2005
8/15/2005
2/15/2006
8/15/2006
2/15/2007
8/15/2007
2/15/2008
8/15/2008
2/15/2009
8/15/2009
IRR (semiannual interest)
Annualizing the semiannual IRR
YTM using XIRR

Cash flow
$ (1,000.00)
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$ 1,030.00
3%
6.09%
6.08%

UNITED STATES TREASURY BOND, 6%,

MATURING 15 AUGUST 2009
Face value of bonds bought
Coupon rate
Market price
Accrude interest

$ 1,000.00
6.00%
$ 1,059.51
$
30.00

Accrued price paid

29.51

Cash flows to purchaser at bond issue

Date
12-Feb-01
15-Feb-01
15-Aug-01
15-Feb-02
15-Aug-02
15-Feb-03
15-Aug-03
15-Feb-04
15-Aug-04
15-Feb-05
15-Aug-05
15-Feb-06
15-Aug-06
15-Feb-07
15-Aug-07
15-Feb-08
15-Aug-08
15-Feb-09
15-Aug-09
XIRR (semiannual interest)
Excel's Yield function
Excel's Yield annualized

Cash flow
$ (1,089.02)
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$
30.00
$ 1,030.00
5.193%
5.128%
5.193%

ON BONDS

XYZ Bond value

$1,450.00

0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
12.00%
13.00%
14.00%

Bond value
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

1,490.00
1,403.69
1,323.60
1,249.21
1,180.06
1,115.73
1,055.82
1,000.00
947.94
899.34
853.95
811.51
771.81
734.64
699.82

$1,350.00
$1,250.00

Bond Value

Market interest rate

$1,150.00
$1,050.00
$950.00
$850.00
$750.00
$650.00
0%

1%

2%

3%

4%

5%

6%

7%

Market Interest rate

PAYMENTS

ABC bond
cash flow

Date
15-Dec-00
15-Jun-01
15-Dec-01
15-Jun-02
15-Dec-02
15-Jun-03
15-Dec-03
15-Jun-04
15-Dec-04
15-Jun-05
15-Dec-05
15-Jun-06
15-Dec-06
15-Jun-07
15-Dec-07

$ (1,000.00)
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$
35.00
$ 1,035.00

YTM using XIRR

7.12%

MPUTATIONS
Number of days since
last coupon

109

Number of days
between coupons

365

ND, 6%,
09

Today's date
Last coupon date
Next coupon date

12-Feb-01
15-Aug-00
15-Feb-01

Days since last coupon

Days between coupon
Semiannual coupon
Accrued interest

181
184
$
$

30.00
29.51

ond value

7%

8%

Market Interest rate

9%

10%

11%

12%

13%

14%

GIANT INDUSTRIES 9% BONDS

ISSUER PERSPECTIVE
1
Sept. 1997 (issue date)
Principal amount ($ million)
$
150.00
Net received by Giant Industries $
146.80
Coupon rate
9.00%
Maturity date
1-Sep-07
Issue date
1-Sep-97

Date
1-Sep-97
1-Mar-98
1-Sep-98
1-Mar-99
1-Sep-99
1-Mar-00
1-Sep-00
1-Mar-01
1-Sep-01
1-Mar-02
1-Sep-02
1-Mar-03
1-Sep-03
1-Mar-04
1-Sep-04
1-Mar-05
1-Sep-05
1-Mar-06
1-Sep-06
1-Mar-07
1-Sep-07
Semiannual IRR of payments
YTM--annualized semiannual IRR
YTM computed with XIRR

Cash flow
to Giant
Industries
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

146.80
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(6.75)
(156.75)
4.67%
9.55%
9.55%

GIANT INDUSTRIES 9% BONDS

BUYER PERSPECTIVE
1 Sept. 1997 (issue date)
Face value of bonds bought $ 1,000.00
Coupon rate
9.00%
Maturity date
1-Sep-07
Issue date
1-Sep-97

Date

Cash flow
to Giant
Industries

1-Sep-97
1-Mar-98
1-Sep-98
1-Mar-99
1-Sep-99
1-Mar-00
1-Sep-00
1-Mar-01
1-Sep-01
1-Mar-02
1-Sep-02
1-Mar-03
1-Sep-03
1-Mar-04
1-Sep-04
1-Mar-05
1-Sep-05
1-Mar-06
1-Sep-06
1-Mar-07
1-Sep-07

$ (1,000.00)
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$
45.00
$ 1,045.00

Semiannual IRR of payments

YTM--annualized semiannual IRR
YTM computed with XIRR

4.50%
9.20%
9.20%

GIANT INDUSTRIES 9% BONDS

BUYER PERSPECTIVE
7
Dec. 2000
Face value of bonds bought $ 1,000.00
Accrued interest calculation
Coupon rate
9.00%
Today's date
12/7/2000
Quoted price
$
932.50 Las coupon date
9/1/2000
Accrued interest
$
24.12 Next coupon date
3/1/2001
Actual price paid

Date
1-Sep-97
1-Mar-98
1-Sep-98
1-Mar-99
1-Sep-99
1-Mar-00
1-Sep-00
1-Mar-01
1-Sep-01
1-Mar-02
1-Sep-02
1-Mar-03
1-Sep-03
1-Mar-04
1-Sep-04
1-Mar-05
1-Sep-05
1-Mar-06
1-Sep-06
1-Mar-07
1-Sep-07

956.62

Cash flow to
Giant
Industries
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Semiannual IRR of payments

YTM--annualized semiannual IRR
YTM computed with XIRR

(956.62)
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
45.00
1,045.00
4.84%
9.92%
9.92%

97
181

Days since last coupon paid

Days between coupons
Semiannual coupon
Accrued interest

$
$

45.00
24.12

GENERAL ELECTRIC BONDS

Face value
Coupon rate
Maturity date
Current date
First call
Bond price on current date

25.00
5.875%
18-Feb-33
18-Feb-03
20-Feb-08
$
27.00

Computing the Yield to Maturity

Date
Cash flow
18-Aug-03
18-Nov-03
18-Feb-04
18-May-04
18-Aug-04
18-Nov-04
18-Feb-05
18-May-05
18-Aug-05
18-Nov-05
18-Feb-06
18-May-06
18-Aug-06
18-Nov-06
18-Feb-07
18-May-07
18-Aug-07
18-Nov-07
18-Feb-08
18-May-08
18-Aug-08
18-Nov-08
18-Feb-09
18-May-09
18-Aug-09
18-Nov-09
18-Feb-10
18-May-10
18-Aug-10
18-Nov-10
18-Feb-11
18-May-11
18-Aug-11
18-Nov-11
18-Feb-12
18-May-12

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

(27.00)
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672

Computing the Yield to First Call

Date
18-Aug-03
18-Nov-03
18-Feb-04
18-May-04
18-Aug-04
18-Nov-04
18-Feb-05
18-May-05
18-Aug-05
18-Nov-05
18-Feb-06
18-May-06
18-Aug-06
18-Nov-06
18-Feb-07
18-May-07
18-Aug-07
18-Nov-07
18-Feb-08

Using XIRR
Annualizing the quarterly IRR
Using Yield
4 times the YTM

18-Aug-12
18-Nov-12
18-Feb-13
18-May-13
18-Aug-13
18-Nov-13
18-Feb-14
18-May-14
18-Aug-14
18-Nov-14
18-Feb-15
18-May-15
18-Aug-15
18-Nov-15
18-Feb-16
18-May-16
18-Aug-16
18-Nov-16
18-Feb-17
18-May-17
18-Aug-17
18-Nov-17
18-Feb-18
18-May-18
18-Aug-18
18-Nov-18
18-Feb-19
18-May-19
18-Aug-19
18-Nov-19
18-Feb-20
18-May-20
18-Aug-20
18-Nov-20
18-Feb-21
18-May-21
18-Aug-21
18-Nov-21
18-Feb-22
18-May-22
18-Aug-22
18-Nov-22
18-Feb-23
18-May-23
18-Aug-23
18-Nov-23
18-Feb-24

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672

18-May-24
18-Aug-24
18-Nov-24
18-Feb-25
18-May-25
18-Aug-25
18-Nov-25
18-Feb-26
18-May-26
18-Aug-26
18-Nov-26
18-Feb-27
18-May-27
18-Aug-27
18-Nov-27
18-Feb-28
18-May-28
18-Aug-28
18-Nov-28
18-Feb-29
18-May-29
18-Aug-29
18-Nov-29
18-Feb-30
18-May-30
18-Aug-30
18-Nov-30
18-Feb-31
18-May-31
18-Aug-31
18-Nov-31
18-Feb-32
18-May-32
18-Aug-32
18-Nov-32
18-Feb-33

$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 0.3672
$ 25.3672

USING XIRR
Annualizing the quarterly IRR

5.44%
5.44%

Using Yield
4 times the YTM

5.34%
5.34%

Yield to First Call

Cash flow
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

(27.00)
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
0.3672
25.3672
3.98%
3.99%
4.10%
3.93%

ALABAMA POWER PREFERRED STOCK

annualized yield assuming no call
Annual dividend
$
1.30
Quaterly dividend
$
0.33
Market price, 1 July 2003
$
26.10
Quaterly yield
Annualized yied

1.25%
5.07%

1-Apr-04
1-Jul-04
1-Oct-04
1-Jan-05
1-Apr-05
1-Jul-05
1-Oct-05
1-Jan-06
1-Apr-06
1-Jul-06
1-Oct-06
1-Jan-07
1-Apr-07
1-Jul-07
1-Oct-07
1-Jan-08
1-Apr-08
1-Jul-08
19-Aug-08

Yield to first call

ALABAMA POWER PREFERRED STOCK

annualized yield assuming no call
Call date
19-Aug-08
Last dividend date
1-Jul-08
Next dividend date
1-Oct-08
Par value
$
25.00
Quaterly dividend
$
0.3250
Days since last dividend
Days between last dividend and next dividend
Accrued dividend on call date
Paid by company to shareholders at call

$
$

Date
1-Jul-03
1-Oct-03
1-Jan-04
1-Apr-04
1-Jul-04
1-Oct-04
1-Jan-05
1-Apr-05
1-Jul-05
1-Oct-05
1-Jan-06
1-Apr-06
1-Jul-06
1-Oct-06
1-Jan-07
1-Apr-07
1-Jul-07
1-Oct-07
1-Jan-08
1-Apr-08
1-Jul-08
19-Aug-08

Yield to first call

49
92
0.17
25.17

Cash flow
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

(26.10)
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
0.3250
25.1731
4.30%

USING ZERO-COUPONS TO DETERMINE

DISSCOUNT RATE

BOND

Zero-coupon bond A: maturity in one year

Price today
Price in one year
IRR

100
105
5.00%

Zero-coupon bond A: maturity in two years

Price today
Price in two year
IRR

99
110
5.41%

Zero-coupon bond A: maturity in three years

Price today
Price in three years
IRR

101
122
6.50%

Zero-coupon bond A: maturity in ten years

Price today
Price in ten years
IRR

$ 1,500,000.00
$ 3,500,000.00
8.84%

Date
Cash flow
3/26/2013
9/26/2013
03/26/

GIANT INDUSTRIES 9% BONDS ISSUER

PERSPECTIVE
1 Sept. 1997 (issue
date)
Principal amount ($ million)
$
2,000,000.00
Net received by Giant Industries $
1,500,000.00
Coupon payment
$
125,000.00
Coupon rate
6.25%
Maturity date
26-Mar-23
Issue date
26-Mar-13
Cash flow to Giant
Industries

Date
26-Mar-13
26-Sep-13
26-Mar-14
26-Sep-14
26-Mar-15
26-Sep-15
26-Mar-16
26-Sep-16
26-Mar-17
26-Sep-17
26-Mar-18
26-Sep-18
26-Mar-19
26-Sep-19
26-Mar-20
26-Sep-20
26-Mar-21
26-Sep-21
26-Mar-22
26-Sep-22
26-Mar-23
Semiannual IRR of payments
YTM--annualized semiannual IRR
YTM computed with XIRR

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

1,500,000.00
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(62,500.00)
(2,062,500.00)
5.16%
10.58%
10.57%

GIANT INDUSTRIES 9% BONDS ISSUER

PERSPECTIVE
1 Sept. 1997 (iss
date)
Principal amount ($ million)
Net received by Giant Industries
Coupon payment
Coupon rate
Maturity date
Issue date

Date
26-Mar-13
26-Sep-13
26-Mar-14
26-Sep-14
26-Mar-15
26-Sep-15
26-Mar-16
26-Sep-16
26-Mar-17
26-Sep-17
26-Mar-18
26-Sep-18
26-Mar-19
26-Sep-19
26-Mar-20
26-Sep-20
26-Mar-21
26-Sep-21
26-Mar-22
26-Sep-22
26-Mar-23
Semiannual IRR of payments
YTM--annualized semiannual IRR
YTM computed with XIRR

TRIES 9% BONDS ISSUER

1 Sept. 1997 (issue
date)
$
$

3,500,000.00
1,500,000.00
0.00%
26-Mar-23
26-Mar-13

Cash flow to Giant

Industries
$

1,500,000.00

(3,500,000.00)
133.33%
444.44%
8.84%

0
1
2
3
4
5
6
7
8
9
10
10

Date
Cash flow
3/26/2011
500,000
9/26/2011
-2000
3/26/2012
-2000
9/26/2012
-2000
3/26/2013
-2000
9/26/2013
2000
3/26/2014
2000 $ 3,283.93
9/26/2014
2000
3/26/2015
2000 $ 3,507.11
9/26/2015
2000
3/26/2016
2000 $ 3,745.45
3/26/2016
500,000 $ 375,657.40
$ 386,193.89