Approximate redemption yields

Extract

With the present high rates of income tax and low yields, redemption yields are frequently outside the range of bond value tables and even of the more accessible interest tables. The following approximate method of estimating yields has been found satisfactory in practice:

For a bond bought at ɪ + k paying g per annum half-yearly redeemable in n years at ɪ the yield i convertible half-yearly can be written

where at rate ½i.

Practical use of (ɪ) depends upon the accuracy with which we estimate θ. Successive approximation will give a correct result, but the formula is not in a form when this method can be easily used. Successive approximation can be more easily effected by choosing θ and then estimating the error.