a) In the previous section of this problem set, explain why the calculated YTM of a bond could
be a bad characterization (inaccurate) of the rate of return of a bond investment. Put your
response in the box below: Hint [1]: how was YTM calculated from the cash flows of the bond?
Hint [3]: see lecture notes on the concept of "yield illusion". Hint [2]: what assumptions were
made on this TVM-based calculation? b) If YTM is a potentially bad method of calculation of a
bond's rate of return, what other method of calculation is more appropriate? And why is this
method always correct (accurate)? Put your response in the box below: Hint: see lecture notes on
Realized Compound Yield [RCY]. PS: RCY is also termed as Horizon Yield [HY] and Total
Return [TR] in some textbooks. c) Are there any bad assumptions made in the calculation of the
YTM of zero-coupon bonds? Hint [1]: any incorrect TVM assumptions made on it's bond's cash
flows? Hint [2]: any "yield illusion" problems?.
a) In the previous section of this problem set, explain why the calcu.pdf
1. a) In the previous section of this problem set, explain why the calculated YTM of a bond could
be a bad characterization (inaccurate) of the rate of return of a bond investment. Put your
response in the box below: Hint [1]: how was YTM calculated from the cash flows of the bond?
Hint [3]: see lecture notes on the concept of "yield illusion". Hint [2]: what assumptions were
made on this TVM-based calculation? b) If YTM is a potentially bad method of calculation of a
bond's rate of return, what other method of calculation is more appropriate? And why is this
method always correct (accurate)? Put your response in the box below: Hint: see lecture notes on
Realized Compound Yield [RCY]. PS: RCY is also termed as Horizon Yield [HY] and Total
Return [TR] in some textbooks. c) Are there any bad assumptions made in the calculation of the
YTM of zero-coupon bonds? Hint [1]: any incorrect TVM assumptions made on it's bond's cash
flows? Hint [2]: any "yield illusion" problems?
![a) In the previous section of this problem set, explain why the calculated YTM of a bond could
be a bad characterization (inaccurate) of the rate of return of a bond investment. Put your
response in the box below: Hint [1]: how was YTM calculated from the cash flows of the bond?
Hint [3]: see lecture notes on the concept of "yield illusion". Hint [2]: what assumptions were
made on this TVM-based calculation? b) If YTM is a potentially bad method of calculation of a
bond's rate of return, what other method of calculation is more appropriate? And why is this
method always correct (accurate)? Put your response in the box below: Hint: see lecture notes on
Realized Compound Yield [RCY]. PS: RCY is also termed as Horizon Yield [HY] and Total
Return [TR] in some textbooks. c) Are there any bad assumptions made in the calculation of the
YTM of zero-coupon bonds? Hint [1]: any incorrect TVM assumptions made on it's bond's cash
flows? Hint [2]: any "yield illusion" problems?](https://image.slidesharecdn.com/aintheprevioussectionofthisproblemsetexplainwhythecalcu-230322164148-f7367589/85/a-In-the-previous-section-of-this-problem-set-explain-why-the-calcu-pdf-1-320.jpg)
