http://moneysmartlife.com/bond-investing-terms/ Money Tips for a Better Life Tue, 16 Mar 2010 11:20:03 -0400 http://wordpress.org/?v=2.8.4 hourly 1 http://moneysmartlife.com/bond-investing-terms/comment-page-1/#comment-163449 William Little Wed, 07 Oct 2009 09:37:57 +0000 http://moneysmartlife.com/?p=2560#comment-163449 You say in Yield to Maturity – "It is assumed in the calculation that the interest payments are reinvested for the life of the bond at the same yield. This is also called the internal rate of return of the bond." If the interest payments are 'consumed' instead of being 'reinvested for the life of the bond at the same yield' then you get the same Yield to Redemption or Internal Rate of Return on the bond. Your assumption above is not necessary or usual since consumption of interest payments as shown in a cash flow statement is more normal - you may but do NOT need to reinvest at any yield. You say in Yield to Maturity – “It is assumed in the calculation that the interest payments are reinvested for the life of the bond at the same yield. This is also called the internal rate of return of the bond.”
If the interest payments are ‘consumed’ instead of being ‘reinvested for the life of the bond at the same yield’ then you get the same Yield to Redemption or Internal Rate of Return on the bond.
Your assumption above is not necessary or usual since consumption of interest payments as shown in a cash flow statement is more normal – you may but do NOT need to reinvest at any yield.

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