Comment 1: There are three main ways to approach fixed income returns: discounted cash flow, risk premium approach, and including fixed income asset classes in an equilibrium model.
Comment 2: Yield-to-maturity (YTM), one of the most commonly used metrics in valuing fixed income instruments, is the single discount rate that equates the present value of a bond’s cash flows to its par value.
Comment 3: The only reason a bond’s realized return may not equal the initial YTM is that the cash flows may be reinvested at rates above or below the initial YTM.
