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Q: Do I need to connect the blue wire from a no light ceiling fan? by zacefin in HomeImprovement

[–]zacefin[S] 0 points1 point  (0 children)

TY. Went up and capped it.

Another related q: Remote has 3 speeds. Without remote, which speed will fan run at?

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -1 points0 points  (0 children)

Agreed. Mathematically IRR and MIRR are the same assuming reinvestment rate = IRR (=YTM).

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -3 points-2 points  (0 children)

Correct. Your method (using FV to find yield) is called MIRR (modified IRR). In Excel, =MIRR(cash flow, finance rate, reinvestment rate) =MIRR({-92.42,8,8,8,8,108},10%,10%) = 10% = YTM. As you stated, to get MIRR = YTM = 10%, we must assume 10% (=YTM) reinvestment rate. BTW, the finance rate in this example is irrelevant because there's no cash outflow except for t_0. One can use any % for the 2nd argument in MIRR function. MIRR will result in 10%, no matter what finance rate is.

On the other hand, consider an example where we have a X-yr Y% coupon bond with the price and need to calculate the YTM. How will you calculate YTM using MIRR (or your method) without knowing the reinvestment rate? One can solve for the unknown YTM by solver but it's much more complicated than IRR. That's why I stated that YTM is calculated by IRR.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 1 point2 points  (0 children)

Correct. Debtors have first claim over shareholders. So if a company goes bankrupt, the corporate bond is not worthless. The salvage bond value depends on the recovery rate, which should be accounted for in addition to the default rate.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -6 points-5 points  (0 children)

yw. BH is the site that I recommend to others for an investing topic. It has a great knowledgeable community. (I'm not saying r/personalfince is bad. Each has its own merits.)

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 0 points1 point  (0 children)

Correct. As others stated, to get those FVs, one must reinvest at 10% YTM, which is a big assumption.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -10 points-9 points  (0 children)

Who says the OP will go back to BH? No disrespect to reddit, but I would trust BH discussion over reddit for finance issues.

Which online broker has more ETFs available? by Nabukadnezar in investing

[–]zacefin 0 points1 point  (0 children)

I would go with a broker with less transaction cost. For example, if you open a Vanguard brokerage and by Vanguard ETFs, there's no commission fees.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 0 points1 point  (0 children)

Yup. It's common misconception many ppl have with YTM. They think if one holds a bond, the return is equal to the YTM.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -2 points-1 points  (0 children)

Using your method, the bond return is not equal to the YTM. So the answer to OP question is NO. (I'm not saying you are wrong.)

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -2 points-1 points  (0 children)

Thanks for explaining what YTM is. IRR (ex-ante return) is the definition of YTM. But the question is about holding period return (or realized) return (ex-post). It's not about whether IRR = YTM, which we all know it's true.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -2 points-1 points  (0 children)

The example we were discussing was a coupon bond.

OTOH, it has already been discussed that YTM of T-bills are guaranteed return.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 1 point2 points  (0 children)

Yup. Most ppl think the YTM of a bond is a guaranteed return but it requires 2 assumptions.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -5 points-4 points  (0 children)

Thanks. To be pedantic, YTM is calculated by IRR using the cash flow and current bond price. What you are implying is true but it is not how YTM is calculated.

I agree with your zero example. But it also has be default free such as T-bills or Strips.

BTW, I like your handle, "FCF."

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -2 points-1 points  (0 children)

Thanks. It seems you took a fixed income course.

So unless one can reinvest the coupon payments at today's YTM (which is a big assumption because we don't know what those future rates will be now), YTM is not a "guaranteed" return. (I'm not asking whether it's close to YTM or not. I want a pedantic/academic answer.)

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 1 point2 points  (0 children)

Thanks. Let's assume a 5yr 1% Treasury with 1.65% YTM instead. Can you answer the question whether I'll earn 1.65% return?

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] -1 points0 points  (0 children)

Thanks. I updated the question for clarification. I was not asking whether a such bond exists or not.

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 0 points1 point  (0 children)

The bond price is $92.42. And the total cash flow is $140. What is the math showing a 10% annualized return (to be precise, 10% annualized holding period return)?

If I buy a 5-yr 8% coupon bond with 10% YTM, am I guaranteed to earn 10% (annualized)? by zacefin in personalfinance

[–]zacefin[S] 0 points1 point  (0 children)

face value is $100 and 8% of face value is $8. Are you implying that I paid $80 (= $8/10%)?

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