Part-08

Prices & Yields:

Advanced Perspectives

1
Valuation in between
Coupon Dates
 While valuing a bond we assumed
that we were standing on a coupon
payment date.
 This is a significant assumption
because it implies that the next
coupon is exactly one period away.
 What should be the procedure if the
valuation date is in between two
coupon payment dates?
2
The Procedure
for Treasury Bonds
 Calculate the actual number of
days between the date of valuation
and the next coupon date.
 Include the next coupon date.
 But do not include the starting
date.
 Let us call this interval N1.

3
Treasury Bonds (Cont…)
 Calculate the actual number of
days between the coupon date
preceding the valuation date and
the following coupon date.
 Once again include the ending
date but exclude the starting date.
 Let us call this time interval as N2.

4
Treasury Bonds (Cont…)
 The next coupon is then k periods
away where

5
Illustration
 There is a Treasury bond with a face
value of $1,000.
 The coupon rate is 8% per annum,
paid on a semi-annual basis.
 The coupon dates are 15 July and 15
January.
 The maturity date is 15 January 2022.
 Today is 15 September 2002.

6
No. of Days Till the
Next Coupon Date
Month No. of Days
September 15
October 31
November 30
December 31
January 15
TOTAL 122

7
No. of Days between
Coupon Dates
Month No. of Days
July 16
August 31
September 30
October 31
November 30
December 31
January 15
TOTAL 184 8
Treasury Bonds (Cont…)
 K = 122/184 = .6630
 This method is called the
Actual/Actual method and is often
pronounced as the Ack/Ack method.
 It is the method used for Treasury
bonds in the U.S.

9
The Valuation Equation
 Wall Street professionals will then
price the bond using the following
equation.

10
Valuation
 In our example

11
The Treasury Method
 There is a difference between the
Wall Street approach and the
approach used by the Treasury to
value T-bonds.
 The difference is that the Treasury
uses a simple interest approach for
the fractional first period.

12
The Treasury Method
(Cont…)
 The Treasury will thus use the
following equation.

13
The Treasury Method
(Cont…)
 The Treasury approach will always
give a lower price because for a
fractional period the simple
interest approach will always give
a larger discount factor than the
compound interest approach.

14
The 30/360 PSA Approach
 The Actual/Actual method is applicable
for Treasury bonds in the U.S.
 For corporate bonds in the U.S. we use
what is called the 30/360 PSA method.
 In this method the number of days
between successive coupon dates is
always taken to be 180.
 That is each month is considered to be of
30 days.
15
The 30/360 Approach
(Cont…)
 The number of days from the date
of valuation till the next coupon
date is calculated as follows.
 The start date is defined as
 D1 = (month1, day1,year1)
 The ending date is defined as
 D2 = (month2,day2,year2)
16
The 30/360 Approach
(Cont…)
 The number of days is then
calculated as
 360(year2 – year1) + 30(month2 –
month1) + (day2 – day1)

17
Additional Rules
 If day1 = 31 then set day1 = 30
 If day1 is the last day of February,
then set day1 = 30
 If day1 = 30 or has been set equal
to 30, then if day2 = 31, set day2 =
30

18
 Examples of Calculations
Start Date End Date Actual Days
Days Based on
30/360
Jan-01-86 Feb-01-86 31 30
Jan-15-86 Feb-01-86 17 16
Feb-15-86 Apr-01-86 45 46
Jul-15-86 Sep-15-86 62 60
Nov-01-86 Mar-01-87 120 120
Dec-15-86 Dec-31-86 16 16
Dec-31-86 Feb-01-87 31 31
Feb-01-88 Mar-01-88 29 30 19
Pricing of A Corporate
Bond
 Let us assume that the bond
considered earlier was a corporate
bond rather than a Treasury bond.

20
Pricing (Cont…)

21
30/360 ISDA
 The difference between 30/360
PSA and 30/360 ISDA is that the
additional rule pertaining to the
last day of February is not
applicable.

22
30/360 SIA
 The additional rules for this
convention are the following.
 If day1 = 31, then set day1 = 30.
 If day1 is the last day of February and
the bond pays a coupon on the last
day of February then set day1 = 30.
 If day1 = 30 or has been set equal to
30, then if day2 = 31, set day2 = 30.
23
30/360 European
Convention
 In this convention, if day2 = 31,
then it is always set equal to 30.
 So the additional rules are:
 If day1 = 31 then set day1 = 30
 If day2 = 31 then set day2 = 30

24
Examples of Calculations
Start Date End Date Actual Days
Days Based on
30/360E
Mar-31-86 Dec-31-86 275 270

Dec-15-86 Dec-31-86 16 15

25
Actual/365 Convention
 The difference between this and
the Actual/Actual method is that
the denominator in this convention
will consist of 365 even in leap
years.

26
Actual/365 Japanese
 This is used for Japanese Government
Bonds (JGBs)
 It is similar to the Actual/365 method.
 The only difference is that in this case,
the extra day in February is ignored in
leap years, while calculating both the
numerator and the denominator.

27
Actual/365 ISDA
 This day count convention is identical to the
Actual/365 convention for a coupon period that
does not include days falling within a leap year.
 However for a coupon period that includes days
falling within a leap year, the day count is
given by:
#of days falling within the leap year
______________________________ +
366
#of days not falling within the leap year
_________________________________
365

28
Actual/360 Convention
 This is a simple variant of
Actual/365.
 This is the convention used for
money market instruments in most
countries.

29
Global Conventions
Country Security Convention
Japan T-bills Act/365 Japanese
Japan JGBs Act/365 Japanese
Japan Other Bonds Act/365 Japanese
UK Fixed rate gilts Act/Act
UK Index linked gilts Act/Act
UK Strips Act/Act
US T-bills Act/360
US T-notes and T- Act/Act
bonds
US Other bonds 30/360 PSA
India Government bonds 30E/360 30
Accrued Interest
 The price of a bond is the present value of all
the cash flows that the buyer will receive
when he buys the bond.
 Thus the seller is compensated for all the
cash flows that he is parting with.
 This compensation includes the amount due
for the fact that the seller is parting with the
entire next coupon, although he has held it
for a part of the current coupon period.

31
Accrued Interest (Cont…)
 This compensation is called
Accrued Interest.
 Let us denote the sale date by t;
the previous coupon date by t1; and
the following coupon date by t2
 The accrued interest is given by

32
Accrued Interest (Cont…)
 Both the numerator and the
denominator are calculated
according to the conventions
discussed above.
 That is for U.S. Treasury bonds the
Actual/Actual method is used,
whereas for U.S. corporate bonds
the 30/360 method is used.
33
Why Accrued Interest?
 Why should we calculate the
accrued interest if it is already
included in the price calculation?
 The answer is that the quoted bond
price does not include accrued
interest.
 That is, quoted prices are net of
accrued interest.
34
Why Accrued Interest?
(Cont…)
 The rationale is as follows.
 On July 15 the price of the Treasury bond
using a YTM of 10% is $829.83.
 On September 15 the price using a yield
of 10% is $843.5906.
 Since the required yield on both the days
is the same, the increase in price is
entirely due to the accrued interest.

35
Why Accrued Interest
(Cont…)
 On July 15 the accrued interest is
zero.
 This is true because on a coupon
payment date, the accrued interest
has to be zero.
 On September 15 the accrued
interest is

36
Why Accrued Interest?
(Cont…)
 The price net of accrued interest is
 $843.5906 - $13.4783 = $830.1123$, which
is very close to the price of $829.83 that was
observed on July 15.
 We know that as the required yield changes,
so will the price.
 If the accrued interest is not subtracted from
the price before being quoted, then we would
be unsure as to whether the observed price
change is due to a change in the market
yield or is entirely due to accrued interest.
37
Why Accrued Interest?
(Cont…)
 However if prices are reported net
of accrued interest, then in the
short run, observed price changes
will be entirely due to changes in
the market yield.
 Consequently bond prices are
always reported after subtracting
the accrued interest.
38
Clean versus Dirty Prices
 Quoted bond prices are called clean
or add-interest prices.
 When a bond is purchased in
addition to the quoted price, the
accrued interest has also to be
paid.
 The total price that is paid is called
the dirty price or the full price.
39
Negative Accrued Interest
 One logical question is
 Can the accrued interest be negative?
 That is, can there be cases where the seller of the
bond has to pay accrued interest to the buyer.
 The answer is yes.
 In markets where bonds trade ex-dividend the
dirty price will fall by the present value of the
next coupon on the ex-dividend date and the
dirty price will be less than the clean price.

40
Example
 Take a T-bond that matures on 15 July
2021.
 It pays a 9% coupon semi-annually on 15
January and 15 July every year.
 The face value is 1000 and the YTM is
8%.
 Assume that we are on 5 January 2002
which is the ex-dividend date.

41
Example (Cont…)
 Using the Actual/Actual convention we
can calculate k to be 0.0543.

42
Example (Cont…)
 The moment the bond goes ex-
dividend the dirty price will fall by
the present value of the
forthcoming coupon, because the
buyer will be no longer entitled to
it.

43
Example (Cont…)
 Thus the ex-dividend dirty price is

44
Example (Cont…)
 This is the amount payable by the
person who buys the bond an instant
after it goes ex-dividend.
 The accrued interest an instant before
the bond goes ex-dividend is:
0.09x1000 174
________ x ____ = $ 42.5543
2 184

45
Example (Cont…)
 Thus the clean price at the time of the
bond going ex-dividend is
1140.4910 – 42.5543 = $1097.9367
 The clean price is therefore greater than
the ex-dividend dirty price.
 This represents the fact that the seller has to
compensate the buyer because while the
buyer is entitled to his share of the next
coupon the entire amount will be received by
the seller.

46
Example (Cont…)
 The fraction of the next coupon that is
payable to the buyer is
0.09x1000 10
_________ x ____ = $2.4457
2 184
 Hence the buyer has to pay
1097.9367 – 2.4457 = $1095.4910
which is the ex-dividend dirty price.

47
Yield Measures
 The yield or the rate of return from
a bond can and is computed in
various ways.
 We will discuss various yield
measures and their relative merits
and demerits.

48
The Current Yield
 This is very commonly reported.
 Although it is technically very
unsatisfactory.
 It relates the annual coupon
payment to the current market
price.

49
Example of the Current
Yield
 A 15 year 15% coupon bond is
currently selling for $800.
 The current yield is given by

50
Current Yield (Cont…)
 If you buy this bond for $800 and
hold it for one year you will earn
an interest income of $150.
 So your interest yield is 18.75%
 However, if you sell it after one
year you will either make a Capital
Gain or a Capital Loss.

51
Current Yield (Cont…)
 What is a Capital Gain?
 If the price at the time of sale is
higher than the price at which the
bond was bought, the profit is termed
as a Capital Gain.
 Else if there is a loss, it is termed a
Capital Loss.
 The current yield does not take such
gains and losses into account.
52
Current Yield (Cont…)
 One question is:
 Should the current yield be based on the dirty price or the
clean price
 The advantage of using the clean price is that the
current yield will stay constant till the yield
changes.
 However if the dirty price is used the current yield will be
higher in the period between the ex-dividend date and
the coupon date when the dirty price is less than the
clean price and will be lower between the coupon date
and the subsequent ex-dividend date when the dirty price
will be more than the clean price.
 This gives rise to a sawtooth pattern.

53
Current Yield (Cont…)
 The current yield is used to
estimate the cost of or profit from
holding the bond.
 If short-term rates are higher than
the current yield, the bond is said
to involve a running cost.
 This is known as negative carry or
negative funding.
54
Simple YTM
 This yield measure attempts to
rectify the shortcomings of the
current yield by taking into
account capital gains and losses.
 The assumption made is that
capital gains and losses accrue
evenly over the life of the bond.

55
Simple YTM (Cont…)
 The formula is:
Simple YTM = C M-P
__ + ____
P PXN/2

56
Simple YTM (Cont…)
 For the 15 year bond that we
considered earlier
Simple YTM = 150 1000-800
_____+_________ =
20.42%
800 15 x 800

57
Simple YTM (Cont…)
 The problem with the simple YTM
is that it does not take into
account the compound interest
that can be earned by reinvesting
the coupons.
 This will obviously increase the
overall return from the bond.

58
Yield to Maturity (YTM)
 The YTM is the interest rate that
equates the present value of the cash
flows from the bond (assuming that the
bond is held to maturity), to the price of
the bond.
 It is exactly analogous to the concept of
the Internal Rate of Return (IRR) used in
project valuation.

59
YTM (Cont…)
 Consider a bond that makes an
annual coupon of C on a semi-
annual basis.
 The face value is M, the price is P,
and the number of coupons
remaining is N.

60
YTM (Cont…)
 The YTM is the value of y that
satisfies the following equation.

61
YTM (Cont…)
 The YTM is a solution to a non-linear equation.
 We generally require a financial calculator or
a computer to calculate it.
 However it is fairly simple to compute the
YTM in the case of a coupon paying bond with
exactly two periods to maturity.
 In such a case it is simply a solution to a
quadratic equation.

62
YTM for a Zero Coupon
Bond
 The YTM is easy to compute in the
case of zero coupon bonds.
 Consider a ZCB with a face value
of $1,000, maturing after 5 years.
 The current price is $500.
 The YTM is the solution to

63
Features of YTM
 The YTM calculation takes into
account all the coupon payments,
as well as any capital gains/losses
that accrue to an investor who
buys and holds a bond to maturity.

64
Sources of Returns From a
Bond
 A bondholder can expect to receive income
from the following sources.
 Firstly there are coupon payments which are
typically paid every six months.
 There will be a capital gain/loss when a bond
matures or is called before maturity or is sold
before maturity.

65
Returns From a Bond
(Cont…)
 The YTM calculation assumes that the bond is
held to maturity.
 Finally when a coupon is received it will have
to be reinvested till the time the bond
eventually matures or is sold or is called.
 Once again the YTM calculation assumes that
the bond is held till maturity.
 The reinvestment income is nothing but
interest on interest.

66
YTM
 A satisfactory measure of the yield
should take into account all the
three sources of income.
 The current yield measure
considers only the coupon for the
first year.
 All the other factors are totally
ignored.
67
YTM (Cont…)
 The YTM calculation takes into account all the
three sources of income.
 However it makes two key assumptions.
 Firstly it assumes that the bond is held till
maturity.
 Secondly it assumes that all intermediate
coupons are reinvested at the YTM itself.

68
YTM (Cont…)
 The latter assumption is built in to the
mathematics of the YTM calculation.
 The YTM is called a Promised Yield.
 It is Promised because in order to realize
it you have to satisfy both the above
conditions.
 If either of the two conditions is violated
you may not get what was promised.

69
The Re-investment
Assumption
 Consider a bond that pays a semi-annual
coupon of $C/2.
 Let r be the annual rate of interest at
which these coupons can be re-invested.
 r would be dependent on the market
rate of interest that is prevailing when
the coupon is received, and need not be
equal to y, the YTM, or c, the coupon
rate.

70
Reinvestment (Cont…)
 For ease of exposition we will assume that r
is a constant for the life of the bond.
 However, in practice, it is likely that each
coupon may have to be reinvested at a
different rate of interest.
 Thus each coupon can be re-invested at a
rate of r/2 per six monthly period.

71
Reinvestment (Cont…)
 The coupon stream is an annuity.
 The final payoff from re-investment
is the future value of this annuity.
 The future value is

72
Reinvestment (Cont…)
 The future value represents the
sum of all the coupons which are
reinvested (which in this case is the
principal), plus the interest from re-
investment.
 The total value of coupons that are
reinvested is

73
 Re-investment (Cont…)
 The interest on interest is
therefore

The YTM Calculation assumes that r/2 = y/2.

74
Reinvestment in Action
 Consider an L&T bond with 10 years
to maturity.
 The face value is Rs 1,000.
 It pay a semi-annual coupon at the
rate of 10% per annum.
 The YTM is 12% per annum.
 Price can be calculated to be
Rs 885.295.
75
Reinvestment in Action
(Cont…)
 Assume that the semi-annual
interest payments can be
reinvested at a six monthly rate of
6%, which corresponds to a
nominal annual rate of 12%.
 The total coupon income = 50 x 20
= 1000

76
Reinvestment in Action
(Cont…)
 Interest on interest gotten by
reinvesting the coupons

77
Reinvestment in Action
(Cont…)
 Finally in the end you will get back
the face value of Rs 1,000.
 So the total cash flow at the end

= 1000 + 839.3 + 1000 = 2839.3

 To get this income, the bondholder

has to make an initial investment of

885.295.

78
Reinvestment in Action
(Cont…)
 So what is the effective rate of
return?
 It is the value of i that satisfies the
following equation

79
Reinvestment in Action
(Cont…)
 So the rate of return is 6% on a semi-
annual basis or 12% on a nominal
annual basis, which is exactly the same
as the YTM.
 So how was this return achieved?
 Only by being able to reinvest all the
coupons at a nominal annual rate of
12%, compounded on a semi-annual
basis.
80
The Significance of the
Reinvestment Rate
 The reinvestment rate affects only the
interest on interest income.
 The other two sources are unaffected.
 If r > y, that is if the reinvestment rate were
to be higher than the YTM, then the
investor’s interest on interest income would
be higher, and the return on investment, i,
would be greater than the YTM, y.

81
The Reinvestment Rate
(Cont…)
 On the contrary, if r < y, that is, the
reinvestment rate is less than the YTM, then
the interest on interest income would be
lower, and the rate of return, i, would be less
than the YTM, y.
 So if you buy a bond by paying a price which
corresponds to a given YTM, you will realize
that YTM only if
 You hold the bond till maturity
 You are able to reinvest all the intermediate
coupons at the YTM.
82
Reinvestment Risk
 One of the risks faced by an investor is that
the future reinvestment rates may be less
than the YTM which was in effect at the time
the bond was purchased.
 This risk is called Reinvestment Risk.
 The degree of reinvestment risk depends on
the time to maturity as well as the quantum
of the coupon.

83
Reinvestment Risk
(Cont…)
 For a bond with a given YTM, and a
coupon rate, the greater the time to
maturity, the more dependent is the
total return from the bond on the
reinvestment income.
 Thus everything else remaining
constant, the longer the term to
maturity, the greater is the
reinvestment risk.
84
Reinvestment Risk
(Cont…)
 For a bond with a given maturity and YTM,
the greater the quantum of the coupon, or
in other words, the higher the coupon rate,
the more dependent is the total return on
the reinvestment income.
 Thus everything else remaining the same,
the larger the coupon rate, the greater is
the reinvestment risk.

85
Reinvestment Risk
(Cont…)
 Thus premium bonds will be more
vulnerable to such risks than
bonds selling at par.
 Correspondingly, discount bonds
will be less vulnerable than bonds
selling at par.

86
Zero Coupon Bonds
and Reinvestment Risk
 If a zero coupon bond is held to maturity, there
will be no reinvestment risk, because there are
no coupons to reinvest.
 Thus if a ZCB is held to maturity, the actual rate
of return will be equal to the promised YTM.
 If the risk is lower or absent, the return should
also be less.
 Thus a ZCB will command a higher price than an
otherwise similar Plain Vanilla bond.

87
The Realized Compound
Yield
 We will continue with the assumption
that the bond is held till maturity.
 But we will make an explicit assumption
about the rate at which the coupons can
be reinvested.
 That is, unlike in the case of the YTM,
we will no longer take it for granted that
intermediate cash flows can be
reinvested at the YTM.
88
Illustration
 Let us reconsider the L&T bond.
 Assume that intermediate coupons can
be reinvested at 7% for six months, or at
a nominal annual rate of 14%.
 The total coupon income and the final
face value payment will remain the
same, but the reinvestment income will
change.

89
Illustration (Cont…)
 The interest on interest

90
Illustration (Cont…)
 So the final amount received
= 1000 + 1049.75 + 1000 = 3049.75
 The initial investment is once again

885.295
 Therefore, the rate of return is given

by

91
Illustration (Cont…)
 This is the rate of return for six months.
 The nominal annual return is 6.38 x 2 =
12.76%, which is greater than the YTM
of 12%.
 The RCY is greater than the YTM,
because we assumed that the
reinvestment rate was greater than the
YTM.

92
Illustration (Cont…)
 Had we assumed the reinvestment rate
to be less than the YTM, the RCY would
have turned out to be less than the YTM.
 The RCY can be an ex-ante or an ex-post
measure.
 Ex-ante means that we make an
assumption about the reinvestment rate
and then calculate the RCY.

93
Illustration (Cont…)
 Ex-post means that we take into
account the actual rate at which
we have been able to reinvest and
calculate the RCY.

94
The Horizon Return
 Let us now relax both the
assumptions which were used to
calculate the YTM.
 Firstly the investor need not hold
the bond until maturity.
 Secondly he may not be able to
reinvest the coupons at the YTM.

95
The Horizon Return
(Cont…)
 Now the return will depend on three sources
– the coupons received, the reinvestment
income, and the price at which the bond is
sold prior to maturity.
 The important issue is that the sale price of
the bond would depend on the prevailing
market yield at that point in time, and need
not equal the face value.

96
Illustration
 Assume that an investor with a 7 year
investment horizon buys the L&T bond that we
discussed earlier.
 He will get coupons for 14 periods (not 20).
 The total coupon income will be
 50x14 = 700
 We will assume that the reinvestment rate is
expected to be 7% per six monthly period.

97
Illustration (Cont…)
 We will also assume that the
investor expects the YTM after 7
years to be 12% per annum.
 The first step is to calculate the
expected price at the time of sale.
 At that point in time the bond will
have 3 years to maturity.

98
Illustration (Cont…)
 The price using a YTM of 12% can
be shown to be Rs 950.865.
 The interest on interest

99
Illustration (Cont…)
The total terminal cash flow
= 700 + 427.50 + 950.865 =
2,078.365
 The initial investment as before is
885.295

100
Illustration (Cont…)
 The nominal annual rate of return
is
6.29x2 = 12.58%
 This is the Horizon Yield.
 Once again, it can be calculated
ex-post or ex-ante.

101
Yield to Call (YTC)
 This measure of the rate of return is
used for callable bonds.
 The YTC is the yield that will make
the present value of the cash flows
from the bond equal to the price,
assuming the bond is held till the
call date.
 In principle a bond can have many
possible call dates.
102
YTC (Cont…)
 In practice the cash flows are
usually taken only till the first call
date, although they can easily be
taken to any subsequent call date.
 The YTC is given by the equation

103
YTC (Cont…)
 N* is the number of coupons till the call
date.
 M* is the price at which the bond is
expected to be recalled.
 M* need not equal the face value.
 In practice companies pay as much as one
year’s coupon as a Call Premium at the
time of recall.
 If so, M* = M + C
104
Illustration (Cont…)
 Let us assume that the L&T bond is
a callable bond and that the first
call date is 7 years away.
 Assume that a call premium of Rs
100 will be paid if the bond is
recalled.

105
Illustration (Cont…)
 The YTC is the solution to the
following equation

106
Illustration (Cont…)
 The solution comes out to be 6.74%.
 So the YTC on an annual basis is 13.48%.
 The YTC is very important for Premium
Bonds.
 The very fact that a bond is selling at a
premium, indicates that the coupon is
greater than the yield, and that therefore
there is a greater chance of recall.

107
The Yield to Worst
 In practice the investors compute
the YTC for every possible call
date.
 They then compute the YTM as
well.
 The lowest of all possible values is
called the Yield to Worst.

108
Portfolio Yield
 Consider a case where you hold a
portfolio or a collection of bonds.
 You cannot simply calculate the
yield from the portfolio as a
weighted average of the YTMs of
the individual bonds.

109
Portfolio Yield (Cont…)
 You have to first compute the cash
flows from the portfolio, and then
find that interest rate which will
make the present value of the cash
flows equal to the sum of the
prices of the component bonds.

110
Illustration
 Consider a person who buys a
TELCO bond and a Ranbaxy bond.
 The TELCO bond has a time to
maturity of 5 years, face value of
1000, and pays coupons semi-
annually at the rate of 10% per
annum.
 The YTM is 12% per annum.
111
Illustration (Cont…)
 The Ranbaxy bond has a face value
of 1000, time to maturity of 4 years,
and pays a coupon of 10% per
annum semi-annually.
 The YTM is 16% per annum.
 Consider a portfolio consisting of one
bond of each company.
 What is the portfolio yield?
112
Illustration (Cont…)
 The first step is to calculate the two prices.
 The price of the TELCO bond can be shown
to be 926.405.
 The price of the Ranbaxy bond can be
shown to be 827.63.
 The total initial investment is therefore
 1,754.035

113
 The Cash Flow Table
Period Investment Inflow from Inflow from Total
TELCO Ranbaxy

0 (1754.035) (1754.035)
1 50 50 100
2 50 50 100
3 50 50 100
4 50 50 100
5 50 50 100
6 50 50 100
7 50 50 100
8 50 1050 1100
9 50 50
114
10 1050 1050
Illustration (Cont…)
 Using a financial calculator or a
spread sheet, the portfolio yield
can be calculated to be 13.76%.

115