# 5. Yield Measures for Fixed-Rate Bonds

## f. calculate annual yield on a bond for varying compounding periods in a year;

What is periodicity of an annual interest rate? The periodicity of an annual interest rate is the number of periods in the year.

What are three different ways to determine yield based on days of the year?
- **Street convention yields** assume that payments are made on scheduled dates, excluding weekends and holidays.
- The **true yield** is calculated using a calendar including weekends and holidays.
- The **government equivalent yield** is based on actual/actual day count.

What is current yield? What is simple yield? - The current yield relates the annual dollar coupon interest to the market price. - The simple yield is similar to the current yield but includes the straight-line amortization of the discount or premium.

What is the appropriate yield measure for callable bonds? For callable bonds a yield to first call, which assumes that the bond will be called on the first call date, is computed.

What is yield-to-worst? The yield to worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting.

What is an option-adjusted-yield? The option-adjusted-yield is the yield-to-maturity after adding the theoretical value of the call option to the price.

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CFA

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- 115.070.03 Fixed Income - Reading 44 - Introduction to Fixed-Income Valuation to 115.070.03.05 Fixed Income - Reading 44 - 5. Yield Measures for Fixed-Rate Bonds