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Suppose an investor who pays £120 on 15 July 2007 for £100 nominal of a six-year stock with half-yearly coupon payments of 13% pa and is not subject to tax. The stock is redeemable at par. Calculate the running yield?

I understood entire question but what actually is running yield?

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up vote 1 down vote accepted

Running yield is the annual income from an investment divided by its current market value. Unless the market price is equal to the nominal price, it will not be the same as the nominal yield or the redemption yield.

So in this case $\dfrac{13}{120}$ or about 10.83%.

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Even though there are 12 half yearly coupons? – soandos May 20 '11 at 6:41
so, the running does not depend on number of periods coupons are made? Or is 10.8% for one year? – amul28 May 20 '11 at 6:49
@soandos: I think this agrees with me. – Henry May 20 '11 at 6:51
yes, book has answer as 10.8% – amul28 May 20 '11 at 6:54

"Used to describe the income investors get from their portfolio as a percentage of market value of the securities."

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