I was hoping someone could help me figure out how to calculate the yield of a loan with a less than 4 year average life.
I'm trying to build out a formula in excel that will calcualte the yield from a database. It's basically back of the envelope, but what I have so far is the spread + LIBOR floor and every point of OID off par equaling roughly 25 bps. So a loan at L+300, with a 1.00% floor at 99 would yield 4.25%.
The problem with the above is that it doesn't take into account OID for a loan with 2or 3 years. Does anyone have any input into how I could do this better?
Thank you for your time and consideration.
Let me ask you this: Do you understand WHY each point of OID=25 bps of yield for a 4 year loan? If the answer that question is yes, you should be able to figure this out pretty easily.
Would appreciate hearing the answer to Kenny_Powers_CFA's question.
An OID is an original issuers discount which essentially means that the bond is issued at a price of some % (in this case 99) of par. The difference between the issue price and the par value is then amortized over the life of the bond. If the life is 4 years, it would be (100-99)/4 = 25 bps per year of yield. If it were 2 years it would be (100-99)/2 = 50 bps per year of yield.
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