Sorry this is what I wanted to say…
I’m struggling here as well. I understand why "target return " is smaller YTM for upsloping yield curve as reinvestment of coupon is at lower rates than YTM and vice versa BUT why is target rate at the horizon date the lower bound of portfolio value. Le’s say yield curve was flat at 7.5% and then increases immediately to 7.7% and stays there. So target return> initial target return as reinvestment return higher? Understood! But if rates drop from 7.5 to 7.3% then reinvestment return is < 7.5% so new target Value should smaller then initial Target value. that’s how I see it … So why is prortfolio value at horizon date always > target protfolio value no matter if rates move up or down as suggested on page 32.
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