home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
Fritz: All Fritz
/
All Fritz.zip
/
All Fritz
/
FILES
/
FINACIAL
/
YLDBOOK.LZH
/
YB.DOC
< prev
next >
Wrap
Text File
|
1992-02-17
|
27KB
|
630 lines
GENERAL
YieldBook (YB) is a shareware program that computes prices and yields for
bonds to maturity and to the call according to the formulae and methods
presented in "Standard Securities Calculation Methods", by Spence, Graudenz
and Lynch, published by the Securities Industry Association in 1973 and
according to Rule G-33 of the Municipal Securities Rulemaking Board.
Calculations are made using either the municipal or corporate bond mode of
30/360 days or the government bond mode of actual days/actual days. The
mode being used shows on the screen. YieldBook Version 1.2 properly
computes prices and yields for bonds with maturities greater than 6 months
including zero coupon bonds.
OPERATION
YB is simple to use.
To begin YieldBook enter "YB" at the prompt.
To print this file enter "copy YB.DOC prn" at the prompt.
All entries are made from the data entry display in the upper right
corner of the screen. After the entry is complete press the appropriate
highlighted key to store the data. Use the backspace key to correct errors
before pressing the applicable data storage key. YieldBook will validate
all date entries and make sure other entries are reasonable. All data
storage keys can be either upper or lower case.
SETTLEMENT DATE:
The Settlement Date is automatically computed to seven (7) calendar days
after the current date in your computer. This is usually the regular
settlement date. To change the settlement date simply enter the date you
wish to use in the format "mm/dd/yy" or "mm-dd-yy" and press the "S" key.
The same formats are used for entering all dates.
CALC PRICE:
Enter bond coupon as a percent (i.e., enter 4 1/2% as 4.50 - not .045) and
press "C". Enter the maturity date and press "M". Enter the yield (as a
percent) for the bond and press "Y". The bond price is calculated by
pressing F1.
CALC YIELD:
Enter bond coupon as a percent and press "C". Enter the maturity date and
press "M". Enter the price for the bond and press "P". Bond yield is
calculated by pressing F2.
-1-
CALC PRICE-TO-CALL:
Enter bond coupon as a percent and press "C". Enter the call date and
press "D". Enter the call price (not the call premium; i.e 102 is the call
price when 2% is the call premium) and press "r". Enter the yield for the
bond and press "Y". Price-to-call is calculated by pressing F3.
CALC YIELD-TO-CALL:
Enter bond coupon as a percent and press "C". Enter the call date and
press "D". Enter the call price and press "r". Enter the price for the
bond and press "P". Yield-to-call is calculated by pressing F4.
INTEREST ACCRUED DATE:
The Interest Accrued Date is automatically calculated when a Maturity is
entered. You need not change it unless you are working with a bond with an
odd (long or short) first coupon period. The user can only access the
Interest Accrued Date in the "Mun" calculation mode. When in the "Gov"
calculation mode the Interest Accrued Date will be a date that is exactly 6
months before the next interest payment date. YB CALCULATIONS FOR "ODD"
FIRST PERIODS DO NOT AGREE WITH RESULTS FROM OTHER CALCULATORS USED IN THE
SECURITIES INDUSTRY. SEE "DISCUSSION OF ODD FIRST PERIODS".
RESULTS:
Results are computed by pressing the applicable function key. The answer
is then shown in a blinking field. When new data is entered the field
stops blinking. THE ANSWER SHOWN IS ONLY VALID FOR THE DATA SHOWN WHEN THE
FIELD IS BLINKING!
CURRENT YIELD: is the rate of actual cash flow as percent of the purchase
price.
ACCRUED INT/M: is the amount of accrued interest to be paid the seller of a
bond on sales between interest payment dates. This result is per $1,000
par amount of bonds.
DURATION: is a mathematical measure (Macaulay method) of how quickly an
investor recovers his or her investment. Bonds of similar duration will
have the similar price movements for a given move in interest rates. For a
more complete discussion of Duration see "Duration Analysis, Managing
Interest Rate Risk" by Gerald O. Bierwag, 1987, by Ballinger Publishing
Company.
CALCULATION PRIORITIES:
YB will compute prices and yields to the call and to maturity if all
information is available. If the call information is omitted, YB will only
calculate the price or yield to maturity. Similarly, if the maturity is
omitted, YB will only calculate the price or yield to the call.
-2-
If all information is entered calculations are made both to maturity and
the call date. The following priorities apply:
1. F1: Calc Px - YB Calculates both the price-to-maturity and the
price-to-call using the yield in "Y";
2. F3: Calc Px-Call - YB first calculates the price-to-call using the
yield in "e" and then computes yield-to-maturity using the price in "i";
3. F2: Calc Yld - YB calculates both yield-to-maturity and yield-to-call
using the price in "P";
4. F4: Calc Yld-Call - YB calculates both yield-to-maturity and
yield-to-call using the price in "i";
Examples of Calculation Priorities:
1. Calc Px (F1) - A 7% bond matures 9-1-14 and is callable 9-1-94 at 104.
The Broker wants to sell at a 7.50% yield. Under industry rules bonds are
sold at lower of (i) price to maturity or (ii) price to the call. Assume
Settlement Date of 11-1-91. To find the selling price enter 7 in "C", 9-1-
14 in "M", 9-1-94 in "D", 104 in "r" and 7.5 in "Y". Press F1 and The
Price field will show 94.560 and blink. Yield-to-Call will show 7.50% and
show a dollar price of 101.977. The broker should sell the bonds at 94.560
plus accrued interest. If the broker wants to know the Yield-to-Call, if
the bonds are called, he or she should press F2 and using calculation
priority 4 above, a Yield-to-Call of 10.509% is calculated using the
selling price of 94.560.
2. Calc Px-Call (F3) - A 0% bond matures 2-15-07 and is callable 2-15-02
at 61.391. The broker is bidding the bond to yield a 6.90% to the call.
Assuming a Settlement Date of 11-1-91, what is the Price-to-Call and what
is the Yield-to-Maturity if the bond is not called. Enter 0 in "C", 2-15-
07 in "M", 2-15-02 in "D", 61.391 in "r", and 6.9 in "e". Press F3 and
YieldBook and the Price-to-Call field will show 30.548 and a Yield to
Maturity of 7.908%.
MISCELLANEOUS
Version 2 of YB will include:
1. A calculator for regular arithmetic,
2. Commonly used note computations,
3. Step coupon bonds computations, and
4. An option to use YB as a TSR program (One that sits in memory until
needed).
-3-
DISCLAIMER - AGREEMENT
Users of YieldBook must accept this disclaimer of warranty:
"YIELDBOOK IS SUPPLIED AS IS. THE AUTHOR DISCLAIMS ALL WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND OF FITNESS FOR ANY PURPOSE. THE AUTHOR ASSUMES NO
LIABILITY FOR DAMAGES, DIRECT OR CONSEQUENTIAL, WHICH MAY RESULT FROM THE
USE OF YIELDBOOK."
YieldBook is a "shareware program" and is provided at no charge to the
user for evaluation. Feel free to share it with your friends, but please
do not give it away altered or as part of another system. The essence of
"user-supported" software is to provide personal computer users with
quality software without high prices, and yet to provide incentive for
programmers to continue to develop new products. If you find this program
useful and find that you are using YieldBook and continue to use YieldBook
after a reasonable trial period, you must make a registration payment of
$25.00 to Compound Solutions. The $25.00 registration fee will license one
copy for use on any one computer at any one time. You must treat this
software just like a book. An example is that this software may be used by
any number of people and may be freely moved from one computer location to
another, so long as there is no possibility of it being used at one
location while it's being used at another. Just as a book cannot be read
by two different persons at the same time.
Commercial users of YieldBook must register and pay for their copies
of YieldBook within 30 days of first use or their license is withdrawn.
Site-License arrangements may be made by contacting Compound Solutions.
Anyone distributing YieldBook for any kind of remuneration must first
contact Compound Solutions at the address below for authorization. This
authorization will be automatically granted to distributors recognized by
the (ASP) as adhering to its guidelines for shareware distributors, and
such distributors may begin offering YieldBook immediately (However
Compound Solutions must still be advised so that the distributor can be
kept up-to-date with the latest version of YieldBook.).
You are encouraged to pass a copy of YieldBook along to your friends
for evaluation. Please encourage them to register their copy if they find
that they can use it. All registered users will receive a copy of the
latest version of the YieldBook program.
Please register by sending your name and address, the version of
YieldBook you are using, the disk format you require and your check for
$25.00 to:
Compound Solutions
Suite 614
1170 Bower Hill Road
Pittsburgh, PA 15243
-4-
Registered users will receive support and assistance for 3 months
after registration by mail at the above address. All registration fees
received will be acknowledged. All support will be by mail at the above
address. Any major bugs or deficiencies will be corrected. All registered
users will receive a copy of the most recent version of YieldBook and
Version 2, when released. We expect Version to be ready in the 2nd quarter
of 1992. Also registered users will receive BONDS.XLM, a user-defined
function macro sheet that contains the bond pricing and yield calculation
functions for inclusion in Excel 3.0 spreadsheets.
We would appreciate having your comments and recommendations for
enhancements to YieldBook.
YieldBook UPDATE HISTORY
Version 1.0 - 11/16/91: Initial release
Version 1.1 - 11/24/91: Correct bug in ODD First Period calculations - See
"DISCUSSION OF ODD FIRST PERIODS" - changes to YB.DOC to reflect correction
of bug and alterations to shareware and registration requirements.
Version 1.2 - 2/17/92: Correct calculations to conform with MSRB Rule G-33
as to price and yield computations when bonds are sold at "par" or when the
coupon equals the yield on the bond. A bond sold at the same yield as the
coupon will have price other than "par" unless the settlement date is an
interest payment date. (MSRB Interpretation dated May 31, 1984) -
Recognizes Association of Shareware Professionals membership.
ASSOCATION OF SHAREWARE PROFESSIONALS
Compound Solutions is a member of the Association of Shareware
Professionals (ASP). ASP wants to make sure that the shareware principle
works for you. If you are unable to resolve a shareware-related problem
with an ASP member by contacting the member directly, ASP may be able to
help. The ASP Ombudsman can help you resolve a dispute or problem with an
ASP member, but does not provide technical support for members' products.
Please write to the ASP Ombudsman at 545 Grover Road, Muskegon, MI 49442 or
send a CompuServe message via CompuServe Mail to ASP Ombudsman 70007,3536.
DEFINITION OF SHAREWARE
Shareware distribution gives users a chance to try software before
buying it. If you try a Shareware program and continue using it, you are
expected to register. Individual programs differ on details -- some
request registration while others require it, some specify a maximum trial
period. With registration, you get anything from the simple right to
continue using the software to an updated program with printed manual.
-5-
Copyright laws apply to both Shareware and commercial software, and
the copyright holder retains all rights, with a few specific exceptions as
stated below. Shareware authors are accomplished programmers, just like
commercial authors, and the programs are of comparable quality. (In both
cases, there are good programs and bad ones!) The main difference is in
the method of distribution. The author specifically grants the right to
copy and distribute the software, either to all and sundry or to a specific
group. For example, some authors require written permission before a
commercial disk vendor may copy their Shareware.
Shareware is a distribution method, not a type of software. You
should find software that suits your needs and pocketbook, whether it's
commercial or Shareware. The Shareware system makes fitting your needs
easier, because you can try before you buy. Because the overhead is low,
prices are low also. Shareware has the ultimate money-back guarantee -- if
you don't use the product, you don't pay for it.
-6-
DISCUSSION OF ODD FIRST PERIODS
Because of a user comment I became aware of a discrepancy between the
results presented by YieldBook and several different machines commonly used
in the securities industry on calculations involving long or short first
periods. A hypothetical issue's ("Subject Bonds") particulars are
Dated Date: 1/15/90
Coupon: 5.750%
First Coupon: 7/1/90
Maturity: 7/1/10
Yield: 7.875%
Sett Date: 2/4/90
YieldBook calculated a price of 78.573 while the other machines
calculated a price of 78.586 (the price calculated by YieldBook and the
other machines ("OMs") when the Dated Date is 1/1/90 - NOT AN ODD FIRST
PERIOD). Since the author is not privy to the algorithms and methods used
by OMs, I attempted to reproduce the OMs results and could do so by
changing the Interest Accrued Date (Dated Date) to a date exactly 6 months
before the Next Interest Payment Date - not exactly the best mathematical
method. Back to the theory books.
Theory of Bond Pricing:
Essentially the price of a bond represents the discounted present
value of all the future income streams that includes (i) all interest
payments to be paid in the future and (ii) the repayment of principal, less
accrued interest paid. This theory is explained more fully in "Inside the
Yield Book" by Sidney Homer and Martin L. Leibowtiz, 1972, Prentice-Hall
and in Chapter 2 of Bierwag's "Duration Analysis" as well as many other
sources. The methods for implementing this theory are presented in
"Standard Securities Calculation Methods", by Spence, Graudenz and Lynch,
published by the Securities Industry Association in 1973 and in Rule G-33
of the Municipal Securities Rulemaking Board.
These formulae are as follows:
PV(Principal) = P/(1+Y/2)^(N-1+(E-A)/E)
PV(Int Pmts) = SUMMATION of for X = 1 to N
(C/2)/(1+Y/2)^(N-1+(E-A)/E)
Accrued = C/2 * A/E
where
N = Number of interest payments to be made
E = Number of days in the coupon period in which settlement occurs
(30/360 day basis)
A = Number of days from the Dated Date or Last Interest Payment date
to the Settlement Date (30/360 day basis)
Y = Yield on the bond as a decimal (6.6% = .066)
P = Payment of principal due on the maturity date
C = Coupon on the bond as a decimal
-7-
Schedule A below demonstrates this for the Subject Bonds assuming a Dated
Date of 1/1/90 and provides a bond price of 78.586.
YieldBook and the OMs agree on this calculation and all calculations
except those that involve ODD First Periods.
ODD First Periods:
The author believes that OMs implement the above formulae and ignore
the fact that for ODD First Periods, in the first period and the first
period only, the interest paid to a bondholder is NOT
Principal * Coupon / 2
but is
Principal * Coupon * E / 360.
Therefore, for the bonds used in this example the interest payment due
7/1/90 will be $26.51 (166 days @ 5.75%) per $1,000 and not the $28.75 per
$1,000 that will be paid on all subsequent interest payment dates. It is
this difference that affects the bond price and is, in the author's
opinion, the source of the difference in price between YieldBook and OMs on
ODD First Period calculations. Schedule B below demonstrates this for the
subject bonds assuming a Dated Date of 1/15/90.
Schedule B produces a Bond Price of 78.383 not the 78.586 calculated
by OMs. 78.383 is the price YieldBook (Versions 1.1 or later) calculates
given the same data. This represents an actual Yield to Maturity of 7.851%
given a price of 78.586 (the OMs price) or a 2.4 basis point yield
reduction for the investor from the 7.875% yield the investor bargained
for.
Conclusion:
YieldBook (Versions 1.1 or later) calculates ODD First Period prices
and yields using the methods in Schedule B. While they do not match the
results from OMs, the author believes that YieldBook is mathematically
correct and OMs are not. (It appears that the SIA and MSRB formulae do not
take Odd First Periods into consideration.) Since, as stated earlier, the
author does not have access to the algorithms used by the OMs, and has not
been able to match their results without altering the critical data,
YieldBook will continue to generate what the author believes is an accurate
result instead of the result in common use in the securities industry. If
any user can provide information that will prove that YieldBook is
incorrect, it will be changed immediately and all registered users will
receive updated versions.
Bonds with ODD First Periods are a very small part of the bond
industry and the results of incorrect methods only affect transactions made
during the ODD First Period. Nevertheless, issuers, sellers, and
purchasers of bonds are receiving a value other than that for which they
bargained during ODD First Periods. A letter covering these issues is
being sent to the SIA and the MSRB for comment.
-8-
SCHEDULE A
IAD: 1/1/90 Days in Period 180
Cpn: 5.750% Accrued Days 33
Yld: 7.875% No of Int Pmts 41
NID: 7/1/90 Frac = 0.816666667
SD: 2/4/90
Mat: 7/1/10 Price: 78.586
Accrued: 0.527
Date Cash Flow PV Factor PV
1 7/1/90 0.028750 0.96895286 0.027857
2 1/1/91 0.028750 0.93224569 0.026802
3 7/1/91 0.028750 0.89692910 0.025787
4 1/1/92 0.028750 0.86295043 0.024810
5 7/1/92 0.028750 0.83025898 0.023870
6 1/1/93 0.028750 0.79880600 0.022966
7 7/1/93 0.028750 0.76854455 0.022096
8 1/1/94 0.028750 0.73942952 0.021259
9 7/1/94 0.028750 0.71141745 0.020453
10 1/1/95 0.028750 0.68446658 0.019678
11 7/1/95 0.028750 0.65853670 0.018933
12 1/1/96 0.028750 0.63358913 0.018216
13 7/1/96 0.028750 0.60958665 0.017526
14 1/1/97 0.028750 0.58649347 0.016862
15 7/1/97 0.028750 0.56427514 0.016223
16 1/1/98 0.028750 0.54289851 0.015608
17 7/1/98 0.028750 0.52233170 0.015017
18 1/1/99 0.028750 0.50254403 0.014448
19 7/1/99 0.028750 0.48350598 0.013901
20 1/1/00 0.028750 0.46518916 0.013374
21 7/1/00 0.028750 0.44756624 0.012868
22 1/1/01 0.028750 0.43061093 0.012380
23 7/1/01 0.028750 0.41429795 0.011911
24 1/1/02 0.028750 0.39860296 0.011460
25 7/1/02 0.028750 0.38350255 0.011026
26 1/1/03 0.028750 0.36897419 0.010608
27 7/1/03 0.028750 0.35499621 0.010206
28 1/1/04 0.028750 0.34154777 0.009819
29 7/1/04 0.028750 0.32860880 0.009448
30 1/1/05 0.028750 0.31616000 0.009090
31 7/1/05 0.028750 0.30418280 0.008745
32 1/1/06 0.028750 0.29265934 0.008414
33 7/1/06 0.028750 0.28157242 0.008095
34 1/1/07 0.028750 0.27090552 0.007789
35 7/1/07 0.028750 0.26064271 0.007493
36 1/1/08 0.028750 0.25076869 0.007210
37 7/1/08 0.028750 0.24126874 0.006936
38 1/1/09 0.028750 0.23212867 0.006674
39 7/1/09 0.028750 0.22333486 0.006421
40 1/1/10 0.028750 0.21487419 0.006178
41 7/1/10 1.028750 0.20673404 0.212678
--------
PV = 0.791132
Accrued = 0.005270
--------
Price = 0.785861
SCHEDULE B
IAD: 1/15/90 Days in Period 166
Cpn: 5.750% Accrued Days 19
Yld: 7.875% No of Int Pmts 41
NID: 7/1/90 Frac = 0.885542169
SD: 2/4/90
Mat: 7/1/10 Price: 78.383
Accrued: 0.303
Date Cash Flow PV Factor PV
1 7/1/90 0.026514 0.96637893 0.025622
2 1/1/91 0.028750 0.92976926 0.026731
3 7/1/91 0.028750 0.89454649 0.025718
4 1/1/92 0.028750 0.86065808 0.024744
5 7/1/92 0.028750 0.82805348 0.023807
6 1/1/93 0.028750 0.79668404 0.022905
7 7/1/93 0.028750 0.76650299 0.022037
8 1/1/94 0.028750 0.73746529 0.021202
9 7/1/94 0.028750 0.70952764 0.020399
10 1/1/95 0.028750 0.68264836 0.019626
11 7/1/95 0.028750 0.65678736 0.018883
12 1/1/96 0.028750 0.63190606 0.018167
13 7/1/96 0.028750 0.60796734 0.017479
14 1/1/97 0.028750 0.58493551 0.016817
15 7/1/97 0.028750 0.56277619 0.016180
16 1/1/98 0.028750 0.54145635 0.015567
17 7/1/98 0.028750 0.52094417 0.014977
18 1/1/99 0.028750 0.50120907 0.014410
19 7/1/99 0.028750 0.48222159 0.013864
20 1/1/00 0.028750 0.46395343 0.013339
21 7/1/00 0.028750 0.44637732 0.012833
22 1/1/01 0.028750 0.42946705 0.012347
23 7/1/01 0.028750 0.41319741 0.011879
24 1/1/02 0.028750 0.39754411 0.011429
25 7/1/02 0.028750 0.38248381 0.010996
26 1/1/03 0.028750 0.36799404 0.010580
27 7/1/03 0.028750 0.35405320 0.010179
28 1/1/04 0.028750 0.34064048 0.009793
29 7/1/04 0.028750 0.32773588 0.009422
30 1/1/05 0.028750 0.31532015 0.009065
31 7/1/05 0.028750 0.30337477 0.008722
32 1/1/06 0.028750 0.29188192 0.008392
33 7/1/06 0.028750 0.28082445 0.008074
34 1/1/07 0.028750 0.27018588 0.007768
35 7/1/07 0.028750 0.25995034 0.007474
36 1/1/08 0.028750 0.25010255 0.007190
37 7/1/08 0.028750 0.24062783 0.006918
38 1/1/09 0.028750 0.23151204 0.006656
39 7/1/09 0.028750 0.22274159 0.006404
40 1/1/10 0.028750 0.21430340 0.006161
41 7/1/10 1.028750 0.20618487 0.212113
--------
PV = 0.786869
Accrued = 0.003034
--------
Price = 0.783834
YieldBook
(Version 1.2 - 2/17/92)
by
Compound Solutions
Suite 614
1170 Bower Hill Road
Pittsburgh, PA 15243
_______
____|__ | (R)
--| | |-------------------
| ____|__ | Association of
| | |_| Shareware
|__| o | Professionals
-----| | |---------------------
|___|___| MEMBER
