BOND MATH: The Theory Behind the Formulas

Conclusion

Owning or issuing a standard semiannual payment coupon bond entails dealing with many cash flows. A yield-to-maturity statistic is a way of summarizing these many cash flows into just one number. Of the many yield statistics that are out there, the street convention yield is probably the most informative and the most useful in making decisions. It is information and not just more data. At least it is a decent starting place to think about future coupon reinvestment rates and the probability of default. It does, however, neglect the inevitability of taxation. That no longer can be avoided.