Cebula, Richard and Yang, Bill (2007): Yield to Maturity Is Always Received as Promised. Published in: Journal of Economics and Finance Education , Vol. 7, No. 1 (28 August 2008): pp. 43-47.
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Abstract
This note comments on a misconception that yield to maturity from holding a coupon bond until maturity is only promised, but not really received, unless coupon payments are reinvested at the same rate as the (original) yield to maturity. It shows that yield to maturity is always earned no matter how coupon payments are allocated, i.e., whether spent or reinvested at any rate. It illuminates that the realized compounding yield in fact measures the yield to maturity from a combination of two investments rather from simply holding the bond itself until maturity.
| Item Type: | MPRA Paper |
|---|---|
| Original Title: | Yield to Maturity Is Always Received as Promised |
| English Title: | Yield to Maturity Is Always Received as Promised |
| Language: | English |
| Keywords: | interest rate yield; coupon bonds |
| Subjects: | A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics > A22 - Undergraduate A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics > A23 - Graduate E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects |
| Item ID: | 53182 |
| Depositing User: | Richard Cebula |
| Date Deposited: | 25 Jan 2014 13:42 |
| Last Modified: | 28 Sep 2019 02:14 |
| References: | Bodie, Z., A. Kane, and A.J. Marcus, 2002. Investments, 5th edition, New York: McGraw-Hill-Irwin. Fabozzi, F.J., and F. Modigliani, 2002. Capital Markets, Institutions, and Instruments, 3rd edition, Englewood Cliffs, NJ: Prentice Hall. Henrici, P., 1974. Applied and Computational Complex Analysis, New York: John Wiley & Sons, Inc. Madura, J., 1998. Financial Markets and Institutions, 4th edition, Cincinnati, OH: South-Western College Publishing. Mishkin, F.S., 2004. The Economics of Money, Banking and Financial Markets, 7th edition, New York: Pearson-Addison Wesley. Reilly, F.K., and K.C. Brown, 1997. Investment Analysis and Portfolio Management, 5th edition, New York: Dryden Press. Strong, R.A., 2004. Practical Investment Management, 3rd edition, South-Western College Publishing. |
| URI: | https://mpra.ub.uni-muenchen.de/id/eprint/53182 |
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