Lecture 6: Reading the Wall Street Journal

Purpose of knowing how to read the WSJ Bond Page

The WSJ bond page is just the pricing formulas you already know, printed as a table

Coupon-bond pricing explains the T-bond and corporate panels

Discount-bond pricing explains the T-bill panel

Key Tested Tested

Take a quoted coupon rate and quoted yield, plug into the pricing formula, and reproduce the quoted price

Quote Convention (32nds)

Prices are quoted per $100 of face value in 32nds: "99:29" = 99 + 29/32 = $99.906.

Multiply by 10 for a $1,000 face bond

Ask-Yield

The last column; it is the yield to maturity (the i in the coupon-bond formula)

Converting to the Right Frequency

If maturity is in days, work daily: C_daily = C_annual/365, and i_daily solves (1 + i_daily)³⁶⁵ = 1 + i_annual

Asked Discount Rate

i_db = [(F − P)/F] × (360/days)

Uses face value in the denominator and a 360-day year

Ask Yield (true i)

[(F − P)/P] × (365/days)

Uses price in the denominator and a 365-day year

Core Relationship

The discount basis always understates the true yield, so the price it implies slightly overstates the true price

Worked Example

T-bill with n = 20 days

Discount rate 4.03% vs. ask yield 4.10%; implied price $997.7611 vs. true price $997.7585

A gap of only $0.0026 (tiny because maturity is short; the gap grows with maturity)

Easiest Case

Maturity in whole years, so use the annual coupon-bond formula directly, no frequency conversion