Great explanation WLITTLE.
WLITTLE Wrote: ------------------------------------------------------- > I agree, YTM is a basic concept but when some of > you can hardly construct sentances, spell > correctly, or express yourselve then you may have > difficulties in understanding most things. sentances? yourselve? - pot calling the kettle black wouldn’t you say.
not all of us are native english speakers, bear that in mind. Are you a vicious retaker?
Best thing to do is learn your financial calculator cold…the rest is intuitive from there. IRR always assumes everything is reinvested at the same rate…this is one of the downsides! YTM this also applies in the sense that you have to reinvest the cash flows at an equal return to truly earn that rate on the total investment. As others said, this where reinvestment risk applies to fixed income investments. Break out those Level 1 books and learn that financial calculator cold. It’s the only way. No shortcuts. And this will be much more helpful than asking questions on a blog and getting some reliable answers and possibly some not so reliable answers. No hand holding on exam day.
For future reference on reinvested coupons @ the bond’s YTM - Please watch this video starting at 4:00