00:01
So here we're talking about yield to maturity and yield to maturity is the yield if you hold, right? and so how is it defined? i'm going to call this the yield y.
00:13
The idea is that the payments that we're getting are minus, if you buy this bond today, you are first off, you pay this, right? but in the future, you're going to get 100 and in the future, you're going to get 100 again, and then you're going to get your par value, right? so these are going to be your coupons, and then you get repaid the par value.
00:40
The idea of yield to maturity is if this is one year in the future and we discount it once, and these are two years in the future, and we discount them twice, what makes this entire thing equal to zero, right? so this is what we need to solve for, right? what discount rate makes the net present value of buying this bond zero? so let's just algebraically solve this, right? we get 104 .89 outside of one plus y squared is equal to 100 outside of one plus y plus 1100.
01:20
Oh, sorry, got to be very careful with my exponents, right? so you factor this out, 144 .89 plus two times 104 .89 times y plus 104 .89 times y squared is equal to 100 plus, sorry, is equal to 100 plus 100y plus 1100...