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Yield to Maturity Is Always Received as Promised

Author

Listed:
  • Cebula, Richard
  • Yang, Bill

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.

Suggested Citation

  • Cebula, Richard & Yang, Bill, 2007. "Yield to Maturity Is Always Received as Promised," MPRA Paper 53182, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:53182
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    File URL: https://mpra.ub.uni-muenchen.de/53182/1/MPRA_paper_53182.pdf
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    Cited by:

    1. Cebula, Richard & Yang, Bill, 2008. "Yield to Maturity Is Always Received as Promised: A Reply," MPRA Paper 50122, University Library of Munich, Germany.
    2. Cebula, Richard & Yang, Bill, 2008. "Yield to Maturity Is Always Realized as Promised: A Reply," MPRA Paper 54442, University Library of Munich, Germany.

    More about this item

    Keywords

    interest rate yield; coupon bonds;

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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