.The rOliowlIlg IS a revlew'or me LJeo[ lOV"sunems: f\nalYSls and ValuatIOn pnnClples aes.gll"u LU amu"oo w" '''''''''''15 uuu.

umc
:;statements set foerh b)' CFA Insti'!!te. This topic is also covered in:

,YIELD MEASURES, SPOT RATES,

o:~';lt$iG\NDFORWARD
RATEIS ' .

.;;i~I~;:':~'~~:''''~~::'~~:Q:'='
F~~=n~:Q::~=:~~~::~
;~~f!E.~~~~~~.~,;td.lfi.fJ:QQ!:!S:~L~Q!TIe
YJeld..measu[~§-th~EX()U r.arts,. 1 he...re,I3.!L~,:~tlE.!?$.~~~-<:...~1C?p'l~r1.~~~e_s.~'1([ spar.
; ~/Yw.iIUa,lmost certainJy) need (9 k..J1o~_f()r rhe ex~m: ra~.~.i~.an impo!!~.'2!..one.. At a mjf!~1I1Ilm,you' $1ioura'

"" I~~~~~~J~~S:~~~i~~~E:ffi"~~
:;:;;.'. .'. .".,~~~ b°!1.<i~qLlJVaJeJFq.~..ls-The()r?_~~porcanr .~~sP'-~-;9L~.!l.."~..££.!.£:.n-adp~sred
sPJ..sM? vy:henlt.l*s. used
,<.'!'G.i~::r~!~3bout the yiel.c:!.rneasmeLhe.n: l§...ro undersrand ~1!4.J:!Q~"r9"jgterEr,.<=:U.~!.--?Su
we.l..l.a:~how and.~hy it
«~; ~$1~w/la[they are tdIJ!1.K.YQ~so rharY?~I. u!:1,de:sr~n~,t~eir differs from a zero-volatility spread. .

'Y\jTI~t~~~~:'~fsns.::~h~~:;;~\i=:~amasm~~:r-J~~~~~(;k~~"'" '" . ." . .' .

---" '.
/' '
. -annual cash coupon payment
, current YleId = .

. ..." bond price .

. , . "." .. " "" . )

.'

(92006 Schweser Srudy Program ,.; Page 83

 Example: Computing current yield
...

Consider a-.3°-year, ~!..:,~OOyarv~~~ 6 percent!Fmian1Zu,~pq1.l?on~,5~~~j~~l!!:rc;:ndy rradi.ng at $8J

e.g,Sf}-te [ne,~'!!!.en ~.Yield:. .. I
Answer:

The
--- annual cash coupon
-;:-:-:-:--=-o-==c-; , """.0".Rayments
- to'tal:
,~ ,

an~.~_~~~~.~~a~p~_fl,y~y~:or,tt_~.par_~.:lu.e x stated caupon r.ate = $,l:?OO x 0..Y6 = $~~

S~~cethe band isrrading at $8q~.07, the current yield is:

; . 60 ' !
,cutrent yield =- = 0.0748,or 7.48% :
802.07 .,
0 '" -

i\.,.?~:~.ate that cllr~ent x:~eldis ~ed. on ~nn_~4Lr.Qup:OIl~l1!erest:5a_,th..atit isthe s~m~ far a semi:.!-JJ.nu~~I-~
'-"
.
~~~u.~I::pay"bon_~Lwlth>,t.h,c:;..§.amc;:.coupo~:r..~~c;:a,gd
'''''- "", "" ",,---~.,
prICe:;,(See Exq!n._fl,!shk,!:ck #1.).

~,9Jo..m:tturiry-{YTMUs an a~~~;!,.\.i?;S;,gjl1r'!;J:Q;1.J..r.;J,t.C;::,,9f.r..c:;,q!!g,!J~se~ ~Q,na hon..J\p~.,.~p4~~ts-PJomis

~gy.'~ ~2£ a2:>°ndwith..§$!niannual cQHRon,payments, the yielqJ<?m.atui:liY.;!;;...st?,t~d..auwo
tiWf. tQe,sem
internal rate or-ta-urn implied by the bo~~.'sprice. The form-yJa~hacrelatcs bond price and YTM.for a.
. s~r;'ia:nn:ual
., ~ -,,,-,
co~n bond
::::;;::;:= ,,,.:-C---"~,,,"""
'i~: ' I '

CPN + ePN 2 ePN 2N + Par

bond price = YTLfI . 2 + ... + 2N
(1 + ) (I + IT~ ) YTM/
72
.< (
(1+- - 72 )
where:
ePN, = (he (semiannual) coupon payment received after t semiannual.pc::!.iods
N = number of years w matUrity
YTM = Yl~ldta ~atU[iLy .

XIM ~~4qp'fi.c,~~<;>p.:.ta~p:tJlc:,s,~1p-,~.~1!-~ormation.:Th~~0.!,giYen. the,ITMw()u .c;3-p",,~~~f}llatethe price and gi

'p!ice,you E:!L.c.alCl!l~~, ~h?!'J:";M. -' ,~q

. '!Ie <;.~pt..easj1x"~l~f.QLXJ.:M f~om w:e,bond P-!:~~-!,8:::z!}4P.,Q,!1~..price ~ng.!;h~ c;QHI?.Q.P::p~y.~~!1.£,~~?~

;~?l1ld S?Jy£ i( bY,:tL-.~L~!1c;!-~ggJ" tFy.Ll!gjifferent_y,!,lue.s,ofYI¥ until the pres~~t.'yalue 0.£ d!e expected cas

j;~~;~~~~~~{;:~;t~:;:c~-J!;~~ir~7~~/r:~~~J~~~~h~'~i'~?~i~~~~;~~t~;
-~"- '.' res
, a tri~l an,i
../ .
Example: Computing YTM .'

:1 ' i
C9.~s..i,de~
<t,~g:yelr, $1-,9°0 par value bond, with a 6 percent ~oupon rate (semiannual pa.yIi:].~nts) tha
currently trading at $802.07. Calculate the YTM. I '

. I
-~, :"j
\'\,' (IC l---:~:~ :~, i', O( .~::~.) .I F:(/ ';;'-? t,'~ ,i.> j r ~!j :.' I, >,0':) !
C\(

,:./. \"'." coF'"

'1..'--L i. i
I ,\ i
.'
I
.. i
Page 84 @2006 Schweser Study Piogram
. . I
 ~.~~.- ,,~.~.~..~~ LV~... - '---b b

Answer: \~~~
',.' ..;':~.
',:""~. h
\J lKl .\
[I g'!
";?:~~'(' Using a financial calculatar, yau'd find rhe YTM an rhis band as fallaws: " Q
; ;tft~:' . ~d~ \ ---L ~\i 'i,..

;15.,:;
".", PV = -802.07; N = 10 x 2 = 40; FV = 1,0~0;PMT
,
=6012= 30; CPT -+ IN = 4.00
r---/ ?~I ~~~
\
;,4#: 4 percenr is rhe semiannual discaunr r~~~'YTM hn rhe form~la, sa~~_e._rr!vf .~ 2 )(,1~o,~ B;U'') ,
:>;'ti. ,"--d"",,-~., '\ 3:j"d .,-", " '-'-P '7

crt{ -~~!.h~;~ ~b.esig?~p_~_and FVa.r~ pas.i~ivean~ (he shana~~is p:,garive; yau mu.sr dathi: ta..~,:,ai4rhe r-;-.
}1fji' aEdeq ~_::.?.:_?,rn~s~;t.g~.?~_e..T!.~.a.I~ If yau gee the .f.~r()r5 message, you ,can as~ume yauhave
'i<~rA': nat assigned a negative value r.9 the price (PV) af (he band and a.pasitive sign to. the cash flows to. be received

; 11ft.. fron{ d~;'ba~d. '

.' 'he~e a~ c~r(3.;!E~l.::E.i.a_n.-~h~e~ (~a~ exisr ber\'l.e.~.r:..~!ffer..erl~ yi~I.4..!EE.~~!-t~..<kP~ndinLa.p-_~~c:..t_h.~L.~ ~.o.~1,.i.S
~~uf~ngat 1'.:1r,~,~,a~.~scaun"i:;oi-.~.r_a_e!e_miun;;.T~ese reIarians~!p's- ar,e.s.hawn in.-Figure 1. .
Figure 1: Par, Discount, and Premium Bonds

Bond SeLLing at: Relationship

Par coupon rate = cu yield = yiId co marutiry ,

Discount coupon rate < currene yield <.yield co mamriry

Premium coupon rate> currene yield> yield £0 mamriry

E:x:am.!'le: Calc.ula,t.i~gyrM fa~_aJl~ual COup°!l.lwnds

Cansi~..a'::':d~I1£1U;tI-'p-':J,y20-year,
$1!.OOOpar value, V'{irh'a.§.
percent caupon rare thar is tradiqg at $.~.°2.:,07.
Ca!;.!!I.~f.ethe ann!!-!!I::p.IJy--XIl1. ' N- -:0 . -, .,-/(! .r,(J '" - % , .c,~ ~"1r:;:' (, [) ,,'+ l/;:-, r D~j:'t"{: "
, .=~.. . - .I /.L r',.'"'' ;. ' .~' ',- '.J /' h,. ,'..
Answer
.
' ,-' .\ .~. .'L;'{,f
. - v'. ~.
,",".,~ .,L!;-
'f.
. ~' I) ..' .,) / /
The relatian aE'pdd: ahd annual-pay YTM an this band is: .-

20 6
802.07 = L:
t=l
O' + 1,000 -- => YTM=8.019%
. ". '

~~~~ ~e_h<1:veseparated rhe coupon cash flows and rhe principal repayment.
~t The calculatar salutian is:
,.",

.it;, PV = -802.07; N = 20; FV = 1,000; PMT = 60; CPT -+ I!Y = 8.019; 8:019% is the annual-pay YTM.

@2006 S'chweserStudy Program Page 85

 ~e a dis<:(junt rat~.?E,~.9}?_p(:~cenc, and you'll find rhepr_e_s~.[1.t
value of the bond's future cash flows
~oupo-iipayments and the recovery of pri~cip~l) "';iif equal the current market price of the bond. The iJ
is the bond's
,-=-=- YTM.'
--~c,._~-,:, '

For zero.=_~~pon Treasury bo.nds, the c~nve~.ti?ni~t.? qu?te the yields as B.E.Ys(semiannual-paYYTM

Example: Calculating YTM for ~ero-coupon b()?~s

A 5-year Treasury STRIP is priced at $7§8. Calculate the semiannual-pay YTM and annual-pay Y

~nswer: \_W~-:~;'!) "qv c :':, b~ 'J'~ IrJ', r 1)= ",,00 Cf -, "/ - : ' G,7:::.",:~.
" " '0' ~::.' "", \; '; ; J ';, ~, 't' ii '/. ;, ,,,,,;; C ;,;' ;", , .,- , , "...'

The direct calcula~lon method, based on the geometric mean c'overed in Qua'~titative Merh"ods: is:

<he ,=iann~,]-p'y TIM DCBEY

I
~ [(';~~o),~-ll x2 ~ 5.35%
1,00° 5
the annual-pay YTM =
(.768
- ) -1=5.42%

Using the TVM calculator functions:

PV = -768: FV =1,000: PMT = 0; N = 10: CPT -+IIY ==2.675% x 2 = 5.35% forehe' semialln '
YTM, and PV = -768; FV=1,000; PMT = 0: N ==5; CPT-+IIY==5.42% for t~e an,~~~~,I~~~t:

\/ The annual-pay YTM of ~:~~%n:~~nsth~t $76~,ear~iI1gcompound imeresf.of ?,.j.~"r?!.lE'

would g
$.~-,?OOin fiveXe:~~s. ' ' ,

(See Exam Flashbacks #2 through #5)

~~yield to ~~I i~~~ed to calcu\2,t~t,J:U~ yiel<;i.JL11

~allable bRnds that, ~!i,s$[li!l,~:_~H..?-
E~~-mj.l!:!!l--to_.p~.Fe
trading at a premium to p~r, ~he ,yieldto.Jal1 may be les.s than. thc;.yi~~.4.jSUTIi!-tu!i,tX:
This caIf..!:>..!=~pe
,c;~~I:.,
c~J?,~~ below the current -Cii';~ketEic.e.' ' ", .

The.c::~~(;ul~ti?!I:.gfsh.e.x~l(L
(9 --~~1Iis,g. ~ame..,::s.}b:~..£:J,!..s~latio
n_~[J'i~!}ttC?,,-m,..~t~~i.!y;~.~e
~t tha,t,the~4
s1tf/::"~:~!:.dfor the par valuein.FY a~~- t?e num,b/!:.Ofs~1Ei~!~nual p'erio.~ U?lti~t.h~/tf:.ILdat£:.iS-iubs.titut.edfc
t?.~aturIty,1::!,:, Wh~ll a--':?,Qn4"AAs.,,~p..e.~IQq,of
~~1l P£o.tect~9n,. ~~~gl~~~'~~'~-XM¥lii~~,~~~,~~I1.-?::~D~
~~td t~e~.o._nd may fi~~t b~~~Hs:d, .;nd u~ th~"first,caIl p:~~'cem the ~!Jl~ I(1,~sl.Ol!la~..I11<1[}n~
c:~!~-'~t:J:J.e~the_-y-ie~<i.s.{) any subsequeR-tsaIL4~~~.!!sing:..~!t~i.tm.~Wr-i~t~~gU:Il!.L~. " ,',', ...' '" '

~xthe ~?J!d..,:o.Ill.:~:c.'4'~,?yi~io.~JQu_£~.!Lat par_at ~IIl~J:iIIle iH",~~h,~..f.uS!;lre!..-~e

can calcu!a.y: the y!!..l!:~'
.~al(u~iQg.m<;..,n'WJ:ll:>er: Qfyea.r$.,undl die par: calf:-date3!-d par .fo.rlh.:e..rnatu.~!!Yii~yiiient. Ifyouhave a g.
under5ta~~i1!K.qf the yield to maturity measure, th~..Y.TC is ~()d,4iffi~~I~s~~c:ulation; justlJe very care

~~e~~oJi~~~_~rthe
pel measures.' t~~~a,!!,Hr~f?E.~h~tp4~t~.Af.ei;tnple ~i.li ill~~t~~~ethe calcul:lti~J
calla.I).4. .

I
, ''',' .>':
.'\,1 ,,,'
.. , , .'!
..'
'

''''') :-"Exarnple: Computing the YTM, TIC, and yield to fir~t pari call
~~
" .
Consider a 20-year,
..., 10% semiannual-pay
, "
bon(p.rii;;,~_d a!..lJl):hat ' can
..".' be. c_alled
, .""" ip. five' years
,.,' at 102
-. a
at pa! in seven yeaEs.'''Cikulate the YTM, YTC, and yield to !first p:u c~lI. ."
,-_.' ~ -- -~.. .' .- I" "."
Professor's
--"'.'
Note: Bond pricf!s.
'
,!re,ofte71.e.xir~s!~clas,a
,
perce.n.tofpar,
I""'"
(e.g.. 100 ',.= par).
-,

Page 86 @2006 Schweser Srudy piogram

.!,:[? .:, t" t",
() \",','> f:~ : :: ",'''' "', ',-" r; ,. !',,; ,.,
 ~. --- . ----.

.,

N = 10; PV=-1l2; PMT = 5; FV= 102;

, .
CPT -?IIY = 3.71 % and 2 x 3.71 = 7.42% = YTFC
- .

~~lculare (he2'l~l..<Lto firsr par caU (\,TFPC) ~~.~~I~s~.b.:~.r.!-I:~c:.~!:~._~~!!l~~L.~.f

s~~~~~~..~.c:~~~~: ~n.r]the
first par call da~e (14) for Nandpa.dlQOtfor E.Y~~d~.IJo.?'y..=. .
\~':".: , o' ..,." .

"
. N = 14; PV = -112; PMT = 5; FV =. ""'..
.
100; CPT -?I/Y = 3.873% x 2 = 7.746% = YTFPC

<~~" Vl'erc.r.~~if.18."~_(:
~--==
d~::_oLl~IlS~(?-I?~_::~~~'
-
::Note rhar the yield (0 cal!, 7.42 percent, is si~~-ificand;Jower -
than the yield ro maturiry, 8.72 percent.
Ihere would be no reason to ~alcul.ate rheYk!d :t..G
ITr~~\1
calLJ:QLa
..(
I
;~isc~tlnt b~~.d, ~h.~".XIC w.w"~..high~r.Jha.Q"..I.h.t;-.XJJ~1.A!lse the: b.2ncl~.litPp..t..~s;i!!-.~~..~.~EC:" r:~p"idlY.')'YitJL~l,ie\
'calI ro atJ~~~~P.~~ alld, p'~r~?-J?h aneven great~LcalLpri.ce. ~_ohd yields are quoted. on a yield.J!:o C;f!IU>~§.k " . \
~E:en rhe.~.c:. is.le.~:".rh_~~ rJ1G.X:nvL ~hich can only be the .case for bond$.. tJading .ar apremtumrQ thc:;s:~"Uv/

~~~~~~ '

~.;tLe.tci.E9, ~or~t .i~-~~e...'!2.r:~r Y!sJstpwc:ome ~f~n)~~!~.a( aJ,~..RQ~i~!.~,giY£':l_..~~e"S:i!!L'p-rovisions of.t,he. bond. Inthe

~(:)S:~mpk(he yield to.hrsr call is less rhan rhe TIM a.IJ.4J~~~~ha.Q..
t:hy.yie,Jd 'cQ first par calL S<U!.te worst
. ~le o.llt.<:.OJ.ne.is
a .yiel~ 9.(~~'~1 p~.i-cent; rhe. yield .~o.--f.!.~s.~-~~"~_i~~~,e:{{¥1_!.~,~~~~!:
.. '.-..---.---- "
..
.~.~ld t<1~efundin,= refer~-,-tQ.ll.~.£ecificsitUation ~~~~. ~..b.~_I!~,,&J,!n:em.l.'Lf;..:dlableand CIlUJ:.Il;tr~.t;.es~~~
. . .£i}.~~ue..,;J.ttl:aqi.y,~};Q_rb,~i?sue!!. b~h!:r~. £~~1~~.fr.9lE
rI?;~.b?~d);<D.':~p,,-,3j1!!:-£gV.~~i.!.>--Pl2Y~i9~~.~~i,gg
!ldinJULl!ril. ~.QIDLf1!tur~~!.~~ T~:caklllarion of rh~ ,ield to..re.fundin is 'ust like th.at QLoj YTC.. Th~.
e~~£l1~r:~,\S ~!1auh.e y.ield !;.Q..I-~l,1,lldi.n.g,..w,o,wd_u.~~.rhf~.updce!..E..u~!h.~.
d_~e (~I}~t,dl.~r,~f9.!"-
th.~m...~~I,"..of
ds uS!:.cJ.jn~S;f!.\£uhti.2.Q.) i the dat~_w..l1~~£undl!! - .r.orection ends, Recall that"bonds thar are callable
9i:~.u-e.J1~lY.J:dtiIiiatii~:2ir\ be ca. e 4~!Jlg funds fJ:9m..ligJ!['C!.i~C~f.r,..t~.a..~;f.~~.}~~~in~~,:~f~J~w~i-"£~~~~"
~d, "

f~rExample: Cor~p'.~~~g!rM-a~<! yi.~4.t~.p.~.UIT.r). .

!;f~}.~:~---"'-' " . . . ". . .
i!.~~t C~I1:~id.e!";a .~-:-y'.ear,~..P.-~~Jl.t, $~.,.Oq9.se."!.iE.n1!..1i£lJ.7P£!Y.
bonel.. The bond ~:.~.~.~I?-~.€~!_~?2~:1~. T~e first put
.' ?i>
. ,':.:i;:.'.
opportUntty
.
IS_~~ Rar I?" ~~1-S:~: ~alc~Ia~~the Y}Ma!l~ t~~~p'. .
t ".. -;;'"
, .~'5'. Answer:
'{~'.

.(/
:r~~~ YieldN to
= marurity is calculated
6; FV = 1,000; PMT =as:30; PV = -925.40; CPT -?IIY = 4.44 x 2 = 8.88% = YTM
~r'
i{~:.; Yield' to put is calculared as:
(/
i{{
N = 4; FV = 1,000; PMT = 30; PV = -925.40; CPT-?IIY = 5.11 x 2 ~ 10.22% = YTP
:'::

@2006SCllwescr Scud>,Program Page 87

 In this example, the yield co put is higher than the YTM and, therefore, would be the appropriatc )'ide
for this bond.

.~~._casJ:t: n~:w.yield.~S;fX1js. US~~L~Lfil..q£!;g.gge~backedSJ~f!,1,J~Jjc::s,.~~..Q~he.l,.am~ftizing !l~~-~:!>_<!g{e-98

d~~~:.?,~.~_;T-9n.t~~ .cash ~?~~. I~.~ ca.5$§,. !:b.~l;..~f:h.Q1,J.gLQf!h~_I2f!.m;.w~~LJ;.~p-1!oYm.e;.!H"ql1.he~g[~carer..
th
amount r<:911ire4.!.5>3Qwrrize. tb..e.!<?lIJ:!-J?'.I:t;.r
its original life. Cash floyv.yieldlCEY) iCJ.-c9D?orates an am
sch~d'ure'.oL~~L.~as~.flow.~.b~y~d .on assumptjQL\s as. to hoW: p.repaymen~s .;J.fi:Jikdy-to~o,c:;.gg. <2!!Q
~.:,~~.g:~hS.,!!l2~~t.h.l1':E~s~1l~Y's.'. 'Y:~ ~~n.c;ll.<:ula tc::f.;IT?:~.~.:!.lO]J:~hll ir:_~~~na.l.r~~e .?£Eet~!~~ _!J~~ed. o.~.F
P.~~~;°f. ~~e.sesuFL~Y. ".

!!;,°fess°rJ...!!!!!!.: Ii is 1::!.E~..~~~t&.fcf:..18/!..o/.~Kk~,ri[/frdl*~lP~ctl~{llly.,(;ak!dq,f~ iLr;J:J:'E.'J.J/Je exam .anc! 111(f1:~)

.:' ~~~u~ c~ ?i! be. r:.p!! red.. £0. .ill te..r.EI£t °E!. If yo U!..z~ed t(L~.!!EI!.{q!!_~-<;.fy;' j;:.!! us;,!!!.~!;.'!!!!~!!~~ ~zt~ P'.ll.' !!!.e.1!!

; ";.: s:.c..~~~tJ'as a negative v,!l!t~ as c:...~o'eIlte/~~he lIl!l'1.~kly cash flolps seq.l!-m#4tly f£.fCF1/s, aTld solve for! HR, I!!b
'! month!]' rate. .

The following formula

,'"..".
is used,"''''''''''to convert ,..- a (monthlyY
'-'
CFY into bond equivalent
--",,,,,,,,.,,--,-,,-,-,~,,-,-,,,,"'''''''----...
form:

\/
yield =[(1+ monthlyCFYt -lJ x :--
b~:~_~~~~~~ent

. \./ /H::~,
asemian~~a[-p'~Y
w~ have co.~,:<:~~,:~.
th~ mOlllh.IY}':iel~.~D:toa semiannual
YTM':!.! l>on~ equivalent yield."
yield ~d !h~~ ~~~Lcl.it-,tO
h,
make i~ eCLl!.
'. ...
"''''-' ... ..~ .

A limitatiopof the CFY measure is that actUalprepayment..!at,~,,!!.!ay diff~~ from those assuhled in the .1::
~Y.
.,~--
, ..., ."' , .. .. "'" .-r= ~ . . ..".. -""""'~--' --"--'

Th~ A~~~J1lP_~~?~
-" ~nd ~~mitations o( :r£aditional Yield Measure,s.

The prima,~y limitation of the yield to maturity measure is that it does not tell us the conipound rate,
th~'t~~'~i:r(~eanieO<on~;tfix'ed'::iti.'
. .., "" .. ..".,
0. "ei"'esrment
..
over i.~;tif~Th'i~"is
A"
because we do. nQ~w
.--~_..~
the ra£c
~j,~v«i 1 realhe on the rein:vesu:d_cQUp.P.n-RaYf!'1e~ <{,e ieinvestmentr::~e).13-~i.ny"~~nt iJ.come cal1J?'
signihc:al1t,J;?3H.?f th~..I?)::~E~ltf~~lMc~Q".,~r,LiJ:J~£d.
As E..?te~~¥p~~L£h;,,,~P-E~,r.9E~J.t,y,a~?~.t,!he~Ec:!~r.!l.?I.lEC

~~~rE~-wils,~~~fer.~'::~~;T,!.~:i!!~'
ana po~ent1ally hIgher for.car a eUoil I.ris highe~ for b~ds
s. as welL with higher ~oupon.['i~s"other.rhi9;
' .
."=~., , . ." ..u,..~. .

l~~e_~!ized yi:,~~ ()ll.a bond,is the ~~tu;J..Ico.mpo~~4. retlli:n_~h~was.~~E~~e.~.~~~~l~~i~~.~i~linr~~tlllel1t: l~..

com.£u~ea ?-t ~e end.~ rnv~t,ment honzon,. For a bonc{ to have,a r.e.altzed YIeld equal tq Its YTM. a,
Howsprior "iomgnu:i\X.ID.ustbe reinvested at die ynv,f, ;ncl the b;~dm!.!.sLb..e:-Mi:Li:i"~.~i!~a.tudU'. If th
, " '. ."",,",,,,*,,,~..,,",..,,,, -'-"" .. '. . . . ' .. . .~" =
. 'av:.r:i.ge"'iei~,,~~~~en~..~a~.~j§1>~lo~ ,the. YTM! ~e re~fu,e~.'y:idd 1Vil!:be 'il~l9.~ the.Y1;;M. I:~~-~!:~s. rc::as.9,!
o"tfen stated that: r.he~y-iel4.t£:,J!};/!.£1;fIiD!.':H.~lfl1l.f.J
f;ll!lt...f!.ws_Ujilrbe r.eiTzvested .4Ltke..17M and itSSU/1W ~h..at"

. ~~~j!.~.1!ltt~U!Itt..~~)s t e poin~ofLO.$J:ie:re..' ." ..'

~he other i~terlla!.!3:~2..f x:c;.mw~m~,~sl1S~,~.!!:~_a~<!YI~ ~uffe; fro.~.~h~~~1Il.~2f};..C~~!lli~gs si~~~ ~~;

calculated lIke YTMs and GO llot account for reInvestroent mcome. The CFY meas,ure .. IS a1s;0.a,!}.ll1terna
'".~"7"'''''''''')''-'''' " '" ..,
"'-_.~ . . . ---~'t'"~-'" ..." ':"'''__'_-~'''''''-'''''.-''_.." ,,, ',,,"'i'i,',,,, , u.,,~~,.~"~
.~ahdiffer"gre~~lyfi:9.iit:fi~r~~fiz~d
re-turn' m~;~re"ai1d "yield'i.[i~i!lve..,tm-~I!t
. rates are lo~:'s1l1ce 'sch~4.!c.1l
ptm~fp~rpay~~;;'t~'~nd-p~~;;~y~e~ts
~ust be r~'i~~~;;-d~long~ith th~ i~'t~;~~;:p;)~~e;ts. 'C' . .
. ..'.".."""..'"'''''''''''''''''''' .., .. ' ." 1 ,, ,-......
I

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.@1006 Sdlweser Study frogram