What Are the Potential Biases of the Simple Yield Calculation

question 36

Essay

What are the potential biases of the simple yield calculation? Take the example of two straight yen Eurobonds with the same maturity of five years. Bond A has a coupon of 12% and Bond B, a coupon of 8%. The current market yield on yen bonds is 10%. These two bonds have the same yield-to-maturity of 10% and are correctly priced at 107.58% for Bond A and 92.42% for Bond B. What would be the yield-to-maturity indicated by the simple yield calculation?

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Definitions:

Compensation Strategy

A plan established by an organization to determine how to reward employees effectively, taking into account salaries, benefits, bonuses, and other forms of compensation.

Turnover Costs

Expenses related to replacing employees who leave the organization, including recruitment, training, and lost productivity.

Recruitment Costs

Expenses incurred by an organization in the process of finding and hiring new employees, including advertising, interviewing, and training expenses.

Labour Demand

The need or desire for labor within the market or economy, often influenced by economic conditions, organizational growth, and industry trends.