Thread: Yield to Maturity and return help

How do I show that %return=y?


I'd appreciate any help with this...thanks.

Are you supposed to have constant "C"? It's just a geometric series. Can you add that up?

Originally Posted by TKHunny

Are you supposed to have constant "C"? It's just a geometric series. Can you add that up?

I'm not sure...I'm not really good when it comes to these kind of problems where you don't have numbers to play with, what do you mean "add it up"?

If v = 1/(1+i)

C + Cv + Cv^2 + Cv^3 + ... + Cv^(n-1) =

C(1 + v + v^2 + v^3 + ... + v^{n-1)) =

C (1 - v^n)/(1-v)

You can recognize it as a geometric series and add them all up.

I still don't understand. How would adding it up show the discount rate is equal to the %return?

Direct calculation is an excellent method of demonstration.