2.23 Comparison of  Single Discounted Rate (YTM) and Spot Curve 

• You have noted above that the spot curve discounts each of the bond’s cash flows at a different rate.
• Alternatively, the bond’s YTM applies the same rate to each of the bond’s cash flows.
• In the end, using either method will provide the same PV.

Exercise: Using the data for the two-year bond on the prior page, calculate, on a period-by-period basis, the present value of the cash flows and hence the bond’s price, using alternately, the single Y-T-M discount rate, and the spot rates. Use the template provided below.