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  • An Alternative Interpretation of The YTM

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    kanye
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    The YTM is commonly interpreted as the realized return if coupons are reinvested at the YTM rate, but this interpretation assumes reinvestment at the YTM. In reality, the YTM makes no assumptions about reinvestment rates and simply represents the internal rate of return if coupons are received as scheduled and the bond is held to maturity.

    Original Description:

    Lecture 1(1).41

    Original Title

    Lecture 1(1).41

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    The YTM is commonly interpreted as the realized return if coupons are reinvested at the YTM rate, but this interpretation assumes reinvestment at the YTM. In reality, the YTM makes no assumptions about reinvestment rates and simply represents the internal rate of return if coupons are received as scheduled and the bond is held to maturity.

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    6 views1 page

    An Alternative Interpretation of The YTM

    Uploaded by

    kanye
    The YTM is commonly interpreted as the realized return if coupons are reinvested at the YTM rate, but this interpretation assumes reinvestment at the YTM. In reality, the YTM makes no assumptions about reinvestment rates and simply represents the internal rate of return if coupons are received as scheduled and the bond is held to maturity.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    An alternative interpretation of the

    YTM
    Suppose you could reinvest all coupons at an
    interest rate that equals the YTM
    The realized compound yield, i.e. your
    investment return at the maturity of the bond,
    would equal the YTM
    Although this is a common interpretation of
    the YTM, the concept does not make any
    assumptions on reinvestment rates

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