 Mortgage yield

In finance, mortgage yield is a measure of yield of mortgage backed bonds. It is also known as cash flow yield. The mortgage yield, or cash flow yield, of a mortgage backed bond is the discount rate at which net present value of all future cash flows from the bond will be equal to the present price of the bond.^{[1]}
Contents
Formula
When the coupon payments are made on a monthly basis, the mortgage yield can be calculated as:
Where
 t  the time of the cash flow
 n  each instance of coupon payment
 r  the discount rate
 C(t)  the net cash flow (the amount of cash) at time t.
Application
Mortgage yields are primarily a tool for comparing the mortgage bonds market with conventional bonds. The difference between the mortgage backed bond's yield and a conventional bond is called the yield curve spread.
See also
References
 ^ Choudhry, Moorad. Capital Market Instruments: Analysis and Valuation, (FT Press, 2002), p. 208.
Categories: Structured finance
 Fixed income analysis
 Economics and finance stubs
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