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Level Yield Premium/Discount Amortization Federal Investments Seminar Bureau of the Public Debt Parkersburg, WV May 17,

Level Yield Premium/Discount Amortization Federal Investments Seminar Bureau of the Public Debt Parkersburg, WV May 17, 2005.

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Level Yield Premium/Discount Amortization Federal Investments Seminar Bureau of the Public Debt Parkersburg, WV May 17,

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  1. Level Yield Premium/Discount AmortizationFederal Investments SeminarBureau of the Public DebtParkersburg, WVMay 17, 2005

  2. Amortization of security premium or discount is the gradual recognition over the life of the security the premium paid or discount received on the purchase price of the security.

  3. Amortization is accounting recognition – not real money. If the security is held to maturity, all premium or discount is amortized by the maturity date.

  4. If a security purchased at a premium or discount is sold before maturity, accounts are adjusted to the actual sales price received.

  5. Level Yield vs Scientific

  6. Go to Spreadsheet Level Yield Graphs

  7. The price formula used for Level Yield is different from the one used for “Normal Yield”.The difference being, that the level yield price does not have a term to subtract accrued interest at purchase.

  8. To find the yield we must solve for i. • The problem is the exponents. No exact solution exists for this type of equation. • But we can get as close an approximation as we wish using Newton’s method.

  9. Go to spreadsheet. “Amortization-Interest-Yield” A separate spreadsheet should be used for each security. The cells in blue on the Price Calculation tab are filled in for the particular security. The information from the Price Calculation tab carries to the following tabs.

  10. In order to use the Amortization-Interest-Yield spreadsheet the Analysis ToolPak must be installed on your computer’s Excel.

  11. The date columns on the Accrued Interest and Amortization tabs can be edited. By default the dates begin with the purchase date and follow with succeeding month end dates.

  12. All sheets are protected without a password.

  13. The Yield Calculation and Adjustment tabs perform calculations and should not be edited.

  14. Refer to spreadsheet “Note 3.875 due 2-15-13”

  15. Refer to TIPS spreadsheet.

  16. Adjustment Spreadsheet

  17. Excel Error on Adj. Sheet

  18. Questions?

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