Govt Bond Yield Calculation

SkatesOn

FYI: I had also posted this on aam, but not getting any response there, so here's a chance for all you Maths geeks to prove yourselves:

Trying to calc the yield of the following bond: http://www.ise.ie/app/bondDetails.asp?bondID=67496

Using figures for 29/09/10 in Excel:

-95.32 29/09/2010
4 15/01/2011
4 15/01/2012
4 15/01/2013
104 15/01/2014
6.59% (using Excel XIRR formula)

However ISE is showing yield to maturity of 5.577%. Am I missing something?

hivizman

I understand that, if you buy a government bond on the stock exchange, the amount you actually pay is equal to the quoted price plus the interest accrued from the last payment date to the purchase date. In the case of the bond mentioned, the last payment date was 15 January 2010. There are 258 days from 15 January to 29 September (including the first and last days), so the interest accrued is 258/365 x 4 = 2.83. This means that the actual cash a purchaser would have had to pay on 29 September 2010 was (95.32+2.83) = 98.15 per 100 nominal value.

If you use the XIRR function on excel, but replace 95.32 by (95.32+2.83) = 98.15, you should get an internal rate of return of 5.577%.

SkatesOn

Nice one, tried that & it worked.