Hi guys,
Probably a basic question but nonetheless: Why is the YTM viewed as a weighted average of spot rates applying to its own cash flows?
Thanks,
Rex
Simply stating Spot rates are year wise rates to discount the yearly cashflow series of a bond to get present value of the bond… Each year’s rate is different in general…
YTM is single rate for all the years that would bring the same present value of those cashflows… So its sort of a cashflow weighted avg of spot rates…
Yes, this is it.
thanks guys