Author Topic: I am missing something with YTM  (Read 2996 times)

fliphusker

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I am missing something with YTM
« on: August 04, 2016, 07:02:39 PM »
So I bought a note that I normally would not buy on FOLIO today, I just found some spare change under my couch cushion to get it. I do not hand calc YTM on FOLIO mainly as I have not run into anything that I was going to buy that looked off.
I am well aware of its issues
https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=16131757&order_id=117896938&note_id=47107609


Asking price-$7.36
Principle+interest-$7.59
YTM listed-12.44%
Premium- -3.11%

But I was a bit concerned that I was missing something with this note. So found online calc.
http://www.investinganswers.com/calculators/yield/yield-maturity-ytm-calculator-2081
The note has 10 payments left on it so I used .833 for years to maturity and it came out with 12.23% YTM. What am I missing?

Fred93

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Re: I am missing something with YTM
« Reply #1 on: August 04, 2016, 11:45:13 PM »
So found online calc.
http://www.investinganswers.com/calculators/yield/yield-maturity-ytm-calculator-2081
... What am I missing?

1. That calculator was designed for BONDS.  Bonds trade with the accrued interest going to the seller.  LC notes trade "flat", ie with the accrued interest going to the buyer. 

2. That calculator doesn't let you enter the specific day of the transaction or day of the payments.  That matters. 

3. Different definition of YTM.  LC appears to use a non-compounded YTM, where the standard YTM is fully compounded.  (In other words I believe they calculate a monthly YTM and multiply by 12.  I have suggested to them that this is the cause of YTMs lower than -100% which can be seen in the downloadable CSV file.

4. I believe LC has errors in their YTM calculation.  I've told them so and have given them examples, several of which I copied from this forum. 

So, if I were you, I would calculate YTM myself, as you tried to do, but you better do it in an Excel spreadsheet, rather than an online calculator, where you can get the details such as payment dates and accrued interest right.

yojoakak

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Re: I am missing something with YTM
« Reply #2 on: August 04, 2016, 11:46:35 PM »
My YTM calculations almost never match LendingClub's. Sometimes they're close. Sometimes they're way off.

fliphusker

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Re: I am missing something with YTM
« Reply #3 on: August 05, 2016, 11:47:40 AM »
So found online calc.
http://www.investinganswers.com/calculators/yield/yield-maturity-ytm-calculator-2081
... What am I missing?

1. That calculator was designed for BONDS. Bonds trade with the accrued interest going to the seller. LC notes trade "flat", ie with the accrued interest going to the buyer.

2. That calculator doesn't let you enter the specific day of the transaction or day of the payments. That matters.

3. Different definition of YTM. LC appears to use a non-compounded YTM, where the standard YTM is fully compounded. (In other words I believe they calculate a monthly YTM and multiply by 12. I have suggested to them that this is the cause of YTMs lower than -100% which can be seen in the downloadable CSV file.

4. I believe LC has errors in their YTM calculation. I've told them so and have given them examples, several of which I copied from this forum.

So, if I were you, I would calculate YTM myself, as you tried to do, but you better do it in an Excel spreadsheet, rather than an online calculator, where you can get the details such as payment dates and accrued interest right.
Fred that is the reason why I used that calc, to make sure I am in the same ballpark with YTM.  I understand that it is not going to be accurate, but i am not looking to be uber accurate either.  I just do not want to be buying a note that the listed YTM is 5% off.  If I can use a free tool and get close.....
Excel is not free, so not an option.