0
$\begingroup$

According to Bloomberg, the coupon rate on a 10-year UK government bond is 4.75%.

Bloomberg also states that the yield is currently 0.55%, and the market price £143.51.

But if the following formula is correct:

enter image description here

Then the yield should be $\frac{4.75}{143.51} \approx 3.31$%

Clearly this isn't the case. So what did I do wrong?

$\endgroup$
  • 1
    $\begingroup$ Could you please post a link to the Bloomberg report? $\endgroup$ – FreeMarketUnicorn Mar 21 at 19:26
1
$\begingroup$

You did not apply your formula correctly.

Your top formula is correct. But in your bottom formula, the numerator on the left side of the equation is a percentage. It should, instead, be a monetary unit of £ in this case.

The annual coupon payment should be denominated in £. Not a percentage. Otherwise, the units don't balance each other and don't match the units of the original equation.

Edit:

I noticed in your comment you include some information that was left out of the original question: that the par value is £100.

That's why I asked for a link to the source of the Bloomberg report. These numbers would make more since if the par value were £1,000

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.