I know how to calculate the bond price but where does the number 1 come from in the formula ? Can someone explain please ie the number one in 1 + YTM
In: Economics
Because YTM is how much it *increases* each period. You still have the original value (that’s the 1).
If I have $10and get 10% interest per period then at the end I have $10 + 10% x $10 = $10(1+10%) = $11. If I didn’t do (1+YTM) I’d just have $1…the *gain*, I’d be ignoring the original amount.
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