Thorough Description of Yield to Maturity?
"What is a bond price?  A bond is an asset, and like any tradeable asset it has a price.  If I hold $10K face value of a certain GM bond, then I would be willing to sell it at some price, which may be more or less than $10K.  Whoever is willing to sell it for the lowest amount determines the price.  The price is determined by the market, just as all prices are.  It's what you can sell a bond for.  Bond prices may be quoted in various funny ways, like as a discount or premium relative to the face value or as a premium over a treasury, but at the end it all should be converted to how much you have to pay today.  In this case, it's how much you would pay today to get a set of future coupon and principal payments. What is Yield to Maturity?  A bond is a contract entitling you to a certain set of predefined cash flows.  If you take that set of cash flows and discount them using a single rate at all maturities such that the discounted value is equal to the price, the single rate you have identified is the YTM.  Mathematically, this is the same as finding the IRR (internal rate of return) of some set of cash flows.  In this case the cash flows are the coupons and principal repayment.  Other bond concepts.  Note that the other aspects of a bond, like maturity, coupon rate, and face value, are immutably written into the bond contract.  All they do is define what payments the bond entitles the owner to.  They don't say how much someone would pay today in order to be entitled to those payments.  One can't know how much a future payment is worth without discounting.  If you know the appropriate discount rate at every relevant maturity, you could calculate the fair price of a bond.  That's the other direction.  YTM looks at the market price and associated cash flows and imputes what single discount rate would make that price fair. What is YTM good for? Recall what I said about IRR above.  Why would anyone want to know what discount rate equates the cash flows of a project to its cost?  Because it's an easy way to summarize how profitable the project is expected to be. YTM is a quick way to summarize the yield one would get on a bond if they were to buy it today and hold to maturity.  If one bond has a higher YTM than another, than heuristically we believe it pays out more and should be associated with greater risk if the market is working properly.  It can be used to compare bonds or to look at how changes in bond prices are affecting expected yields.  Ask yourself, how would you compare two different bonds with different maturities and coupon rates?  Which one is riskier or more profitable?  The simplest way to summarize this information is with the yield to maturity.  YTM is used frequently enough that when you just say a bond's ""yield,"" people will assume you are talking about its yield to maturity. What is YTM not good for?  One thing to be wary of is using YTM as a discount rate.  It looks like a discount rate but it works for that bond and that bond only.  In reality each individual coupon payment has a true discount rate, and the discount rate at each horizon is different from each other horizon.  Those are true discount rates that can be applied to any cash flow of similar risk to get the right price.  We can think of YTM as some kind of average of those discount rates that produces the correct price for that bond only.  You should never use it for discounting something else."
"How are derivatives like covered warrants or CFDs different from the bucket shops that were made illegal in the US? After reading up a little on the topic, the core difference seems to be that bucket shops were basically running betting pools, with everyone betting against the operator, whereas CFDs and similar derivatives are traded between speculators and the operator merely provides a market and checks the liquidity of participants. A CW seems to be a different matter that I'm not fully sure I understand (at least the description of Wikipedia seems to contradict your statement about not trade being performed on the underlying security). Should I worry that some regulator decides that my ""market maker"" is an illegal gambling operation? Not really. Nations with a mature financial industry (like Japan) invariably have heavy regulations that mandate constant auditing of institutions that sell financial instruments. In Japan, the Financial Services Agency is in charge of this. It's almost impossible that they would let an institution operate and later decide that its basic business model is illegal. What is possible are mainly two scenarios:" "For some studies on why investors make the decisions they do, check out  For a more readable, though less rigorous, look at it, also consider Kahneman's recent book, ""Thinking, Fast and Slow"", which includes the two companion papers written with Tversky on prospect theory. In certain segments (mostly trading) of the investing industry, it is true that something like 90% of investors lose money. But only in certain narrow segments (and most folks would rightly want traders to be counted as a separate beast than an 'investor').  In most segments, it's not true that most investors lose money, but it still is true that most investors exhibit consistent biases that allow for mispricing. I think that understanding the heuristics and biases approach to economics is critical, both because it helps you understand why there are inefficiencies, and also because it helps you understand that quantitative, principled investing is not voodoo black magic; it's simply applying mathematics for the normative part and experimental observations for the descriptive part to yield a business strategy, much like any other way of making money." "The short of it is that bonds are valued based on a fundamental concept of finance called the ""time value of money"". Stated simply, $100 one year from now is not the same as $100 now. If you had $100 now, you could use it to make more money and have more than $100 in a year. Conversely, if you didn't invest it, the $100 would not buy as much in a year as it would now, and so it would lose real value. Therefore, for these two benefits to be worth the same, the money received a year from now must be more than $100, in the amount of what you could make with $100 if you had it now, or at least the rate of inflation. Or, the amount received now could be less than the amount recieved a year from now, such that if you invested this lesser amount you'd expect to have $100 in a year. The simplest bonds simply pay their face value at maturity, and are sold for less than their face value, the difference being the cost to borrow the cash; ""interest"". These are called ""zero-coupon bonds"" and they're around, if maybe uncommon. The price people will pay for these bonds is their ""present value"", and the difference between the present value and face value determines a ""yield""; a rate of return, similar to the interest rate on a CD. Now, zero-coupon bonds are uncommon because they cost a lot. If I buy a zero-coupon bond, I'm basically tying up my money until maturity; I see nothing until the full bond is paid. As such, I would expect the bond issuer to sell me the bond at a rate that makes it worth my while to keep the money tied up. So basically, the bond issuer is paying me compound interest on the loan. The future value of an investment now at a given rate is given by FV = PV(1+r)t. To gain $1 million in new cash today, and pay a 5% yield over 10 years, a company or municipality would have to issue $1.629 million in bonds. You see the effects of the compounding there; the company is paying 5% a year on the principal each year, plus 5% of each 5% already accrued, adding up to an additional 12% of the principal owed as interest. Instead, bond issuers can offer a ""coupon bond"". A coupon bond has a coupon rate, which is a percentage of the face value of the bond that is paid periodically (often annually, sometimes semi-annually or even quarterly). A coupon rate helps a company in two ways. First, the calculation is very straightforward; if you need a million dollars and are willing to pay 5% over 10 years, then that's exactly how you issue the bonds; $1million worth with a 5% coupon rate and a maturity date 10 years out. A $100 5% coupon bond with a 10-year maturity, if sold at face value, would cost only $150 over its lifetime, making the total cost of capital only 50% of the principal instead of 62%. Now, that sounds like a bad deal; if the company's paying less, then you're getting less, right? Well yes, but you also get money sooner. Remember the fundamental principle here; money now is worth more than money later, because of what you can do with money between now and later. You do realize a lower overall yield from this investment, but you get returns from it quickly which you can turn around and reinvest to make more money. As such, you're usually willing to tolerate a lower rate of return, because of the faster turnaround and thus the higher present value. The ""Income Yield %"" from your table is also referred to as the ""Flat Yield"". It is a very crude measure, a simple function of the coupon rate, the current quote price and the face value (R/P * V). For the first bond in your list, the flat yield is (.04/114.63 * 100) = 3.4895%. This is a very simple measure that is roughly analogous to what you would expect to make on the bond if you held it for one year, collected the coupon payment, and then sold the bond for the same price; you'd earn one coupon payment at the end of that year and then recoup the principal. The actual present value calculation for a period of 1 year is PV = FV/(1+r), which rearranges to r = FV/PV - 1; plug in the values (present value 114.63, future value 118.63) and you get exactly the same result. This is crude and inaccurate because in one year, the bond will be a year closer to maturity and will return one less coupon payment; therefore at the same rate of return the present value of the remaining payout of the bond will only be $110.99 (which makes a lot of sense if you think about it; the bond will only pay out $112 if you bought it a year from now, so why would you pay $114 for it?). Another measure, not seen in the list, is the ""simple APY"". Quite simply, it is the yield that will be realized from all cash flows from the bond (all coupon payments plus the face value of the bond), as if all those cash flows happened at maturity. This is calculated using the future value formula: FV = PV (1+r/n)nt, where FV is the future value (the sum of the face value and all coupon payments to be made before maturity), PV is present value (the current purchase price), r is the annual rate (which we're solving for), n is the number of times interest accrues and/or is paid (for an annual coupon that's 1), and t is the number of years to maturity. For the first bond in the list, the simple APY is 0.2974%. This is the effective compound interest rate you would realize if you bought the bond and then took all the returns and stuffed them in a mattress until maturity. Since nobody does this with investment returns, it's not very useful, but it can be used to compare the yield on a zero-coupon bond to the yield on a coupon bond if you treated both the same way, or to compare a coupon bond to a CD or other compound-interest-bearing account that you planned to buy into and not touch for its lifetime. The Yield to Maturity, which IS seen, is the true yield percentage of the bond in time-valued terms, assuming you buy the bond now, hold it to maturity and all coupon payments are made on time and reinvested at a similar yield. This calculation is based on the simple APY, but takes into account the fact that most of the coupon payments will be made prior to maturity; the present value of these will be higher because they happen sooner. The YTM is calculated by summing the present values of all payments based on when they'll occur; so, you'll get one $4 payment a year from now, then another $4 in two years, then $4 in 3 years, and $104 at maturity. The present value of each of those payments is calculated by flipping around the future value formula: PV = FV/(1+r)t. The present value of the entire bond (its current price) is the sum of the present value of each payment: 114.63 = 4/(1+r) + 4/(1+r)2 + 4/(1+r)3 + 104/(1+r)4. You now have to solve for r, which is difficult to isolate; the easiest way to find the rate with a computer is to ""goal seek"" (intelligently guess and check).  Based on the formula above, I calculated a YTM of .314% for the first bond if you bought on Sept 7, 2012 (and thus missed the upcoming coupon payment). Buying today, you'd also be entitled to about 5 weeks' worth of the coupon payment that is due on Sept 07 2012, which is close enough to the present day that the discounted value is a rounding error, putting the YTM of the bond right at .40%. This is the rate of return you'll get off of your investment if you are able to take all the returns from it, when you receive them, and reinvest them at a similar rate (similar to having a savings account at that rate, or being able to buy fractional shares of a mutual fund giving you that rate)." Ok you're looking at this in a very confusing way. First, as said by CapitalNumb3rs, the dividend yield is the dividends paid in the year as a percent of the stock price. Given this fact then if the stock price moves down and the dividend stays the same then the yield increases. Company's don't usually pay out on a yield basis, that's mostly just a calculation to measure how strong a dividend is. This could mean either A. The stock is underpriced and will rise which will lower the yield to a more normal level or B. the company is not doing as well and eventually the dividends will decrease to a point where the yield again looks more normal.   Second off let's look at it in a more realistic way that still takes into account your assumptions:  **YEAR 1** 1. Instead of assuming buying 35% let's put this into a share amount. Let's say there are 1,000,000 shares so you just bought 350k shares for $700k. You paid a price of $2/share. Let's assume the market decides that's a fair price and it stays that way through the end of year 1. This gives us a market capitalization of $2 million.  2. The dividend paid out at year 1 is $60k so you could calculate on a per share basis which would be a dividend of $60k / 1 million shares or a $0.06 dividend per share. Our stock price is still at $2.00 so our yield comes out to $0.06 / $2.00 or 3.0%  **YEAR 2** Assuming no additional shares issued there are still a total of 1 million shares outstanding. You owned 350k and now want to purchase another 50k (5% of outstanding share float). The market price you are able to purchase the 50k shares at has now changed which means that share price is now valued at $1.50 / share. We have a dividend paid out at $100k, which comes out to a dividend per share of $0.10. We have a share value of $1.50 and the $0.10 dividend per share giving us a new yield of 6.66%.   **CONCLUSION:** There are many factors that can cause a company's stock price to fluctuate, some of it is hype based but some of it is a result of material changes. In your case the stock went down 25%. In most scenarios where a stock would have that much decline it would likely either not have been paying a dividend in the first place or would maybe not be paying one for much longer. Most companies that pay dividends are larger and more mature companies with a steady, healthy and predictable cash flow. Also most companies that are that size would not trade a stock under $3.00, I know this is just an example but the scenario is definitely a bit extreme in terms of the price drop and dividend increase. Again the yield is just a calculation that depends on the dividend that is usually planned in advance and the stock price that can fluctuate for many reasons. I hope this made everything more clear and let me know if you have any other questions. Yes, sorry, I should have tried to be clearer. I mean the development appraisal related to construction. Such as residential developments, mixed-use developments etc - what makes these profitable, costs, residual valuation etc.. if this is in the right ballpark The closest I can think of from the back of my head is http://finviz.com/map.ashx, which display a nice map and allows for different intervals. It has different scopes (S&P500, ETFs, World), but does not allow for specific date ranges, though. "Back-testing itself is flawed. ""Past performance is no guarantee of future results"" is an important lesson to understand. Market strategies of one kind or another work until they don't.  Edited in -- AssetPlay.net provides a tool that's halfway to what you are looking for. It only goes back to 1972, however. Just to try it, I compared 100% S&P to a 60/40 blend of S&P with 5 yr t-bills (a misnamed asset, 5 yr treasuries are 'notes' not 'bills') I found the mix actually had a better return with lower volatility.  Now, can I count on that to work moving forward? Rates fell during most of this entire period so bonds/notes both looked pretty good. This is my point regarding the backtest concept.  GeniusTrader appears more sophisticated, but command line work on PCs is beyond me. It may be worth a look for you, JP. ETF Replay appears to be another backtest tool. It has its drawbacks, however, (ETFs only)" I looked into the investopedia one (all their videos are mazing), but that detail just was not clear to me, it also makes be wonder, if a country issues bonds to finance itself, what happens at maturity when literally millions of them  need to be paid? The income needs to have grown to that level or it defaults? Wouldn't all the countries default if that was the case, or are bonds being issued to being able to pay maturity of older bonds already?  (I'm freaking myself out by realizing this)