Realized Compound Yield

§The Yield-to-Maturity measure implicitly assumes that
all coupons can be invested at the
internal rate of return.

§An alternative ex-post yield measure can be computed
that takes the actual reinvestment rates.

100

1100

Time
0

1

2

1100

Reinvested at 8% 108

1208

Realized compound yield = (1208/1000)0.5 - 1 = 9.91%

-1000

Yield to maturity = 10%