Zheng Xu et al., "The Realized Yield
Effect of Genetically Engineered Crops: U.S.
If inflation runs above 1.80% over the next five years, the realized yield
on the TIPS will exceed that of the regular bond.
A large gap exists between the potential and realized yield
for almost all the major crops.
To this end, they construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds ("realized yield
volatility") over daily, weekly, and monthly maturities through the use of high-frequency data.
This shortens the effective maturity of the REMIC bonds and raises the realized yield over the quoted yield.
The quoted yield will not accurately reflect an investor's potential realized yield unless actual prepayments equal assumed prepayments.
RERC's findings highlight the disconnected relationship between required and realized yield rates, and demonstrate the variation between return expectations over io-, five- and one-year time periods.
However, all other property types show a negative variance for a 10-year period, indicating that over this time, realized yield rates have not met required yield rates.
Adjustments estimated below are affected by how, on balance, interest rate shifts impact the realized yield on dedicated portfolios.
[Mathematical Expression Omitted] where r' = realized yield on dedicated portfolios during period between t = 0 and t = k; g' = realized rate of wages growth during period between t = 0 and t=k; (r'-g'), k = realized differential; (r'-g')t=o = contemporaneous differential;7 X' = coefficient of adjustment for dedicated portfolios; and k length of period.
Rapid payoffs will reduce their realized yield. This occurs because investors are unlikely to fully amortize (i.e., recover) the premium before the bonds are repaid.
(The $100 coupon less the $17.59 loss in value on the bond divided by the original investment of $1,017.59 equals 8.1%.) Consequently, the realized yield when principal is prepaid after year one (rather than after year two as assumed when computing the quoted yield) is less than the quoted yield of 9%.