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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: deeno who wrote (17829)	2/25/2004 8:00:27 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 306849

it was meant to be a simplistic example. if you want to spend a lot of time creating a YTM version of the same proof, be my guest. but be forewarned that you will only get so far with Zeros, since its YTM is a theoretical beast which is only guaranteed if held to maturity. the first year "profit" assuming no taxes would be 1.3125 billion actually, there's no telling what the "profit" will be in the interim with Zeros, since the market price (and, accordingly, the market YTM) will fluctuate according to market yields. thus the YTM you calculate is probably going to be different from the in-the-world yield you experience if you sell before maturity. in this sense, yield on a Zero is much more theoretical than yield on a coupon bond, so it is not as nonsensical to talk about average theoretical payout as would be the case with a coupon bond (whose effective payout over an extended time period is again theoretical and dependent on ongoing yields for reinvestment YTM)--especially in the context of a simplistic comparison vs. an effective zero coupon equity (growth stock). even the yield in a taxable acct is probably different, since it will be the phantom which is set when the bond was issued, as opposed to its market YTM. its dishonest just because something is intentionally simplistic does not mean "it's" dishonest. a zero coupon is a balloon payment at maturity. a growth stock, in theory, is also a zero-coupon balloon payment. there's a starting price and a finishing price; what's betwixt is the gain. you can buy it for $25 and it may go to $1 for a quarter century, but it still pays off at $100. thus the average profit is the same. btw, i was being EXTREMELY charitable with a 10% payout ratio vs. revenues. more likely is 2.5%, in which case, google would need $300 billion in revenue 15 years from now.