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Formula sheet/NISM Series XV: Research Analyst/Terminology in Equity and Debt Markets
[ TERMINOLOGY IN EQUITY AND DEBT MARKETS ]

Realised Yield (Annualized Compound Return for Bonds)

Realised Yield=[(Coupon×[(1+r)n−1]/r+Sale Proceeds)/Purchase Price]1/n−1\text{Realised Yield} = [ ( { Coupon \times [(1 + r)^{n} - 1] / r } + \text{Sale Proceeds} ) / \text{Purchase Price} ]^{1/n} - 1
Variables

r: Actual reinvestment rate for coupons; n: Holding period in years; Sale Proceeds: Price realized at exit.

Exam note

Used when holding period is shorter than bond maturity and coupon reinvestment rate differs from initial YTM.

Worked examples
Bond Current Yield and Holding Period Return (HPR)

An 8.50% coupon G-Sec (Face Value Rs 100) is purchased in the secondary market at Rs 102.00. The investor holds it for 1 year, collects the annual coupon of Rs 8.50, reinvests the coupon at 6.00% p.a. for 1 year, and sells the bond at Rs 106.00. Calculate the Current Yield and the 1-year HPR.

Macaulay Duration, Modified Duration & Price Volatility

A 3-year annual bond with Face Value Rs 1,000 carries an 8% coupon and currently trades at par (Yield y = 8%). Its Macaulay Duration is calculated as 2.783 years. Calculate its Modified Duration and the expected % price change if interest rates increase by 75 basis points (+0.75%).