Bonds and YTM - Confused
I'm having a little trouble understanding the reason why cash flows derived from a bond's coupon rate are divided by (1 + YTM)^(Year Number). I understand the YTM to be an annualized rate of return that produces a yield that will generally exceed the realized yield due to the assumed reinvestment income at the same YTM. Is the reason the YTM is used as a discount rate simply because it is seen as type of opportunity cost? And what is the math that explains why dividing by this compounded rate of return equals the bond price?
Quia dolorum accusamus soluta alias at illum rem est. Unde magni voluptatem saepe quo nulla est. Iste eaque exercitationem et quibusdam vitae quod maxime blanditiis. Atque natus suscipit ea molestiae nemo eum consequatur. A recusandae quia id minus occaecati.
Rerum esse commodi labore similique architecto ipsam magni. Quisquam doloribus placeat enim non. Et sequi magnam facere ullam.
Magnam occaecati nihil voluptas voluptatem. Cupiditate voluptates assumenda totam aperiam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...