Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 24

However, if our bargain hunter was trying to outbid others who were also interested in your account and bought that account from you at $1,100 instead, he would still get the $200 interest, but at maturity he would receive the principal of the account which was $1,000. This means that he invested $1,100 and got back $1,200 for a net gain of $100. Plugging in the formulas we would have:

Yield = 200 / 1,100 = 0.18 or 18%

and

Yield to maturity = 100 / 1,100 = .09 or 9%

Well, our bargain hunter didn't have much of a bargain this time (although 9% isn't so bad these days, but it is certainly much lower than 50%).

Generally treasuries do not compound interest and their coupon payments are calculated straight from the interest rates they pay. But since most are marketable, their yields (and yields to maturity) change based on their market prices.

GDP

Economists measure the economic growth in a number of ways but by far GDP (Gross Domestic Product) reported by the Commerce Department is the most recognized of them all. GDP is the sum of goods and services produced and sold within an economy. In other terms, GDP indicates the amount of money changing hands in a given time period. For those of you who may be interested, GDP is a replacement for an older indicator called GNP (Gross National Product). The difference between the two is in the accounting practice.


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