PrefBlog

5 Responses to “October 12, 2006”

1. like_to_retire says:

   October 13, 2006 at 11:48 am

   It seems I continually get a different Yield to Worst whenever you post the YTW for a preferred. It’s a small difference, but it makes me wonder if I am making a mistake in my calculations.

   For example, I get a YTW of 4.57% for PWF.PR.L on Oct 12th with a bid of 26.12 (including first smaller dividend), where you post a YTW of 4.49%

   Do your formulas include extra modifiers above the standard formulas?

   ltr

2. jiHymas says:

   October 13, 2006 at 1:13 pm

   I suspect that your problem is “including first smaller dividend”. According to the company’s website, the record-date for the first dividend of $0.3074 was October 10, implying that the ex-date for this dividend October 5. [Readers who don’t know what these terms mean are urged to read my article Dividends and Ex-Dates]

   I would very much like to get to the bottom of this – I would appreciate your showing your calculations so I can note any tricks and traps.

   Note that HIMIPref™ calculates maturities with a delay set by the programming constraint MATURITY_NOTICE_PERIOD, which is 30 days (so that the maturities in the table below are 30 days after the commencements of the relevant periods). This may lead to minor differences on occasion, but makes life much easier for me when evaluating the effects of current options.

   The pseudoPortfolioReportBox report for this issue shows:

   Evaluated at bid price : 26.1200

   Call 2011-11-30 YTM: 4.77 % [Restricted: 4.77 %] (Prob: 38.68 %)
   Call 2012-11-30 YTM: 4.66 % [Restricted: 4.66 %] (Prob: 2.98 %)
   Call 2013-11-30 YTM: 4.58 % [Restricted: 4.58 %] (Prob: 2.87 %)
   Call 2014-11-30 YTM: 4.53 % [Restricted: 4.53 %] (Prob: 2.83 %)
   Call 2015-11-30 YTM: 4.49 % [Restricted: 4.49 %] (Prob: 2.86 %)
   Option Certainty 2035-10-16 YTM: 4.82 % [Restricted: 4.82 %] (Prob: 49.77 %)

   Yield to Worst : 4.4884 %

   While the cashFlowDiscountingAnalysisBox shows

   A4401025 4138
   2007-01-31 DIVIDEND 0.32 0.986601 0.31
   2007-05-01 DIVIDEND 0.32 0.975869 0.31
   2007-08-01 DIVIDEND 0.32 0.965019 0.31
   2007-11-01 DIVIDEND 0.32 0.954289 0.30
   2008-02-01 DIVIDEND 0.32 0.943679 0.30
   2008-05-01 DIVIDEND 0.32 0.933414 0.30
   2008-08-01 DIVIDEND 0.32 0.923036 0.29
   2008-11-01 DIVIDEND 0.32 0.912773 0.29
   2009-02-01 DIVIDEND 0.32 0.902625 0.29
   2009-05-01 DIVIDEND 0.32 0.892915 0.28
   2009-08-01 DIVIDEND 0.32 0.882987 0.28
   2009-11-01 DIVIDEND 0.32 0.873170 0.28
   2010-02-01 DIVIDEND 0.32 0.863461 0.28
   2010-05-01 DIVIDEND 0.32 0.854173 0.27
   2010-08-01 DIVIDEND 0.32 0.844676 0.27
   2010-11-01 DIVIDEND 0.32 0.835284 0.27
   2011-02-01 DIVIDEND 0.32 0.825997 0.26
   2011-05-01 DIVIDEND 0.32 0.817111 0.26
   2011-08-01 DIVIDEND 0.32 0.808027 0.26
   2011-11-01 DIVIDEND 0.32 0.799043 0.25
   2012-02-01 DIVIDEND 0.32 0.790159 0.25
   2012-05-01 DIVIDEND 0.32 0.781563 0.25
   2012-08-01 DIVIDEND 0.32 0.772874 0.25
   2012-11-01 DIVIDEND 0.32 0.764281 0.24
   2013-02-01 DIVIDEND 0.32 0.755783 0.24
   2013-05-01 DIVIDEND 0.32 0.747653 0.24
   2013-08-01 DIVIDEND 0.32 0.739340 0.24
   2013-11-01 DIVIDEND 0.32 0.731120 0.23
   2014-02-01 DIVIDEND 0.32 0.722991 0.23
   2014-05-01 DIVIDEND 0.32 0.715213 0.23
   2014-08-01 DIVIDEND 0.32 0.707261 0.23
   2014-11-01 DIVIDEND 0.32 0.699398 0.22
   2015-02-01 DIVIDEND 0.32 0.691621 0.22
   2015-05-01 DIVIDEND 0.32 0.684181 0.22
   2015-08-01 DIVIDEND 0.32 0.676574 0.22
   2015-11-01 DIVIDEND 0.32 0.669052 0.21
   2015-11-30 FINAL DIVIDEND 0.10 0.666698 0.07
   2015-11-30 MATURITY 25.00 0.666698 16.67

   Total Cash Flows 36.5762
   Total Present Value 26.1200
   Discounting Rate 4.4884 % (Annual rate compounded semi-annually)

3. like_to_retire says:

   October 13, 2006 at 3:10 pm

   OK, I admit I never expected the Ex to be so soon when the first payment was paid on the 31st and this was the 12th.

   That changes the outcome quite a bit. I’ll have to watch closer for that when comparing yields.

   I include below (for what it’s worth), the cash flow without the first dividend and the resultant YTW.
   Doesn’t exactly match your YTW, but it’s real close, and you have already cleared up what causes small anomolies…..

   Interesting though, I guess my simple spreadsheet makes different assumptions than you do.

   I have a spreadsheet that I downloaded and modified for each preferred I’m looking at with each call date on a different tab.

   I assumed each first, second, third, fourth call dates would be the last day of the call period (where the YTC is the worst)?

   So, for a call from (Oct. 31, 2011 to Oct 30, 2012), I would use the 2012 date for the worst first call yield – since that’s where it’s the worst. Guess that’s not what you do.

   Also, I see for the YTW date you used Oct 30, 2015, where I thought the final call was on or after the 31st?

   The calculation for yield here used simple XIRR,
   then recalculated using (4 x ((yield+1)^0.25-1).

   PWF.PR.L

   Yield to Worst =
   Oct 31, 2015

   Date Cash Flow
   12/Oct/06 -$26.12
   31/Oct/06 $0.00000
   31/Jan/07 $0.31875
   1/May/07 $0.31875
   31/Jul/07 $0.31875
   31/Oct/07 $0.31875
   31/Jan/08 $0.31875
   1/May/08 $0.31875
   31/Jul/08 $0.31875
   31/Oct/08 $0.31875
   31/Jan/09 $0.31875
   1/May/09 $0.31875
   31/Jul/09 $0.31875
   31/Oct/09 $0.31875
   31/Jan/10 $0.31875
   1/May/10 $0.31875
   31/Jul/10 $0.31875
   31/Oct/10 $0.31875
   31/Jan/11 $0.31875
   1/May/11 $0.31875
   31/Jul/11 $0.31875
   31/Oct/11 $0.31875
   31/Jan/12 $0.31875
   1/May/12 $0.31875
   31/Jul/12 $0.31875
   31/Oct/12 $0.31875
   31/Jan/13 $0.31875
   1/May/13 $0.31875
   31/Jul/13 $0.31875
   31/Oct/13 $0.31875
   31/Jan/14 $0.31875
   1/May/14 $0.31875
   31/Jul/14 $0.31875
   31/Oct/14 $0.31875
   31/Jan/15 $0.31875
   1/May/15 $0.31875
   31/Jul/15 $0.31875
   31/Oct/15 $25.31875

   XIRR = 4.532%

   YTW -Q = 4.457%

   —————————-

   ltr

4. jiHymas says:

   October 13, 2006 at 4:01 pm

   I assumed each first, second, third, fourth call dates would be the last day of the call period (where the YTC is the worst)?

   So, for a call from (Oct. 31, 2011 to Oct 30, 2012), I would use the 2012 date for the worst first call yield – since that’s where it’s the worst.

   In any given call period, the call price is constant (by definition), therefore the capital loss to the shareholder is also constant.

   We can also assume that the Current Yield exceeds the Yield-to-Maturity for this calculation, since if it doesn’t then the calculation will not result in a Yield-to-Worst.

   Therefore, the begining of the period results in the lowest calculated yield, since the shareholder will be losing the benefit of extra dividends for the period without making any corresponding benefit with respect to the capital loss.

   Also, I see for the YTW date you used Oct 30, 2015, where I thought the final call was on or after the 31st?

   I suspect a silly mistake – I used 2015-11-30, “11” meaning “November”, thirty days following the start of the period.

   The calculation for yield here used simple XIRR,
   then recalculated using (4 x ((yield+1)^0.25-1).

   I report yields compounded semi-annually, so as to be more comparable with bond reporting. The rate I report of 4.4884% (compounded semi-annually) is equal to 4.4348% (compounded quarterly). The beep or two difference will be due to minor differences in our dividend receipt assumptions and the precise date of the maturity.

5. like_to_retire says:

   October 13, 2006 at 6:02 pm

   [quote]We can also assume that the Current Yield exceeds the Yield-to-Maturity for this calculation, since if it doesn’t then the calculation will not result in a Yield-to-Worst.

   Therefore, the begining of the period results in the lowest calculated yield, since the shareholder will be losing the benefit of extra dividends for the period without making any corresponding benefit with respect to the capital loss.
   [/quote]

   Yeah, that makes sense, of course. I guess I’ve been looking at too many discount issues (SLF, MFC, etc) and since their YTC is usually greater than the current yield resulting in a capital gain, then the end date of the call period would be the lower yield.

   So, only when there is a capital loss, the start date of a call period is the worst date.

   All in all, it would seem a discount issue would be the better prize, since it would seem to have less chance of a call…..

   ltr