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Post by kazamx on Aug 2, 2017 17:27:34 GMT
I thought I understood this but I have managed to confuse myself, so thought I would ask here.
My understanding using KIRS Group as an example
Current Yield = 8.3% YTM = 8.1%
The Current Yield shows how much interest I will receive on an annualised basis if I bought the bond at its current price
The YTM shows the average annual yield I will get assuming I hold the bond to maturity and the bond pays out.
This is the bit I am not sure about.
Do I need to reinvest all interest payments in the bond for it to work out that I get 8.1% YTM? Or does it work out at 8.1% if I just take the interest payments out and spend it on booze?
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Post by ddraiggoch on Aug 2, 2017 18:26:03 GMT
YTM does not assume any dividend or cash payment is reinvested on top of the capital that was invested at the time the yield was calculated. Compounded interest, or may be more accurately the Annual Percentage Yield (APY) makes the assumption that all dividends/cash payments are reinvested and subsequently increases the yield Rest assured that after today's windfall of payments ( five bonds paying out) your beer kitty can be put to good use
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Post by kazamx on Aug 3, 2017 10:51:43 GMT
Awesome,
Thank you very much. The beers would have been on me if I hadn't already reinvested it all.
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