HomeCFACFA Level 1CFA Level 1 | Fixed Income: Calculating Horizon Yield

CFA Level 1 | Fixed Income: Calculating Horizon Yield

  • May 12, 2020
  • Posted by: Fabian Moa, CFA, FRM, CTP, AFM, FMVA, FSA Credential
  • Categories: CFA, CFA Level 1
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CFA Level 1

Topic: Fixed Income

Reading: Understanding Risk and Return

 

The horizon yield is the compounded return of a bond investment that captures the reinvestment income (compounded to the horizon) and the sales proceeds (or par value if held to maturity).

Steps:
1) Calculate the future value of the reinvested coupons up to the holding period.
2) Calculate the value of the bond on the holding period.
3) Calculate the YTM based on:
PV = -initial price
FV = value in Step (1) + (2)
PMT = 0
N = Holding period

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