Thank you! I'm glad I was mistaken.YTM assumes nothing about what the investor does with the coupon payments. However, if you want to compute return and include in your return at the end the earnings gained on the coupons wherever they are then invested, then you are going to have to track those investments and what they earn. Keep in mind that if this money is invested somewhere that pays away interest that is then in turn invested somewhere you have to track and add that in and on and on. If you don't reinvest the coupon payments then your holding has cash flow withdrawals and the concept of return must be abandoned in favor or internal rate of return or time weighted average return. YTM is really the same as or similar to an internal rate of return rather than a (total) return.So, I'm looking at long term secondary market TIPS. Questions:
- My understanding is that the yield assumes that the coupon is reinvested at the same rate as the TIPS?
Googling, I was vaguely reassured to learn that I'm not the only one who, erroneously, thought this.
I found a page that offers a number of sources on "the reinvestment fallacy."https://money.stackexchange.com/questio ... 116#155116
Statistics: Posted by BirdFood — Sat Jun 01, 2024 12:52 am — Replies 43 — Views 4222