Yields up, prices down.
A bond's coupon is fixed when it's issued. When market yields move, the price is what adjusts: it's the coupons and the nominal value, each discounted at the market's yield.
Price
SAR 92.64
Below par: the yield is above the coupon.
- Redemption yield
- 6.00%
- Flat yield
- 5.40%
- Capital gain at redemption
- SAR 7.36
How it works
The same sum with your numbers, step by step.
Coupon each period
100.00 × 5% ÷ 1 = 5.00
Yield per period, and the number of periods
6% ÷ 1 = 0.06 · n = 10 × 1 = 10
Present value of the coupons
5.00 × (1 − 1.06⁻¹⁰) ÷ 0.06 = 36.80
Present value of the nominal value at redemption
100.00 ÷ 1.06¹⁰ = 55.84
Price: the two together
36.80 + 55.84 = SAR 92.64
Flat yield: the annual coupon divided by the price
5.00 ÷ 92.64 = 5.40%
Where this appears in the CME
Bond prices, the flat yield and the redemption yield are in CME-1A, chapter 4 (Bonds), and again in CME-4A, chapter 3 (Asset classes and financial markets).
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