>>>Wow. This is very complicated. I expected a simpler explanation. I found another site where the formula for the YTM formula is shown. And it is very complicated. My conclusion: just stay with the conceptual understanding that can be used in comparing two or more bonds. The actual numbers are not so easy to arrive at.
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>>Actually not, it's just five multiplications and five subtractions. You multiply with 1,0427 to get your amount when the year passes, and then subtract the 20 paid off for the coupon. Do that five times, that's all.
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>I disagree. You take the number 1.0427 as something known and then calculate the amounts. In fact, the number 1.0427 is something that is calculated based on the amounts. In the other links (e.g. the one sent by Al) the formula for YTM is very complicated.

There's no formula, unless you mean the approximations the banksters use. The calculation I used is the check of why is that the correct rate for those end parameters. To reverse it, i.e. to know the end parameters and calculate the rate, I tried to devise a formula back in my mathematician days (and without any coupons, just equal payments all the way through) and the best I could come up with is the iterative methods. Try a bit higher, try a bit lower, then try the middle, then pick the new middle. Because, in this case, the variable you're looking for is in the exponent, and if its value is incorrect then the payments are also wrong (i.e. they'd be too high or too low). Perhaps someone already solved this - I guess every spreadsheet should have some kind of function to do this, which may as well be iterative inside. With the speed of today's machines, you'd never notice how much code is at work.

>>>One suspect of the site where I got the above example is that they spelled 'principle' as 'principal' :)
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>>Ah the eternal lack of words in english, so they have to make the existing ones work overtime on multiple jobs, and still barely manage to eke an existence...
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>>The principle is начало; the principal is either a school director, or a mother company (one whom you pay for franchise or whom you represent) or, in case of banking, the lump sum which is used as the basis to calculate the interest from. And they're all pronounced prinsipl. Isn't interest calculus more logical?
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>Every language has words that sound alike and mean different things. E.g. замок can be a castle or a lock, depending what one needs :)

I generally don't trust statistics which I don't doctor myself, but in this case I already did - you may understand some of this (presently running some maintenance... try tomorrow) and how come so many words have so many meanings. Among the statistics that I didn't doctor myself, there's one which says that the 1000 most frequently used words in english have about 7000 meanings. Now try that with any other language that you know.

>As to interest calculus, it is more logical to you because you are a mathematician. I aint one :)
>Another note on "lack of words" in English. I recently did a search and found that French has about half the number of words of the English language. I am pretty sure that Russian also has fewer words than English.

Those words are the french words in english :). And many of them are false friends. The siége (seat) vs siege (city surrounded by enemy) is the latest I found.

Those numerous words exist in english but aren't used. They are in the dictionaries because there were enough paid people to put them there - the benefits of an empire, eh - so all of the slightly anglicized latin words from biology, chemistry, various dozens of religions, theories etc - they were all written down into dictionaries. Which makes a nice statistic... but then what about slavic languages? The words that are in there are only the first cases of each - the nominative, masculine, singular for nouns, numbers and adjectives, infinitive for verbs and that mostly for the infinite versions thereof; all the finite versions (made by prefix+[optionally shortened] base) may not be there. And if you look at all the possible words that declensions/conjugations/comparisons may make, whoa... which is exactly the reason they aren't put into a dictionary, because there are too many of them. And those derived verbs may not all even exist until someone needs one, slaps a prefix on it and suddenly it exists and everyone understands what it means? Those will not be in any dictionary for a few decades at least.

So the number of words in a dictionary is impossible to use as a measure of the size of a language; it's just a measure of the amount of money/time/effort invested in the dictionary. Better look at the number of words really used by prominent figures - say, presidents, PMs, ministers... OK, no insults - let's say writers. Yes, writers.