Tad Borek <borekfm[at]pacbell.net> writes:

- quote -

I agree that is badly worded. I think what they mean by it is
"the return of the fund before adding inflation to it", which
would indeed be the "real" (in orthodox financial parlance) return.


--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Rich Carreiro wrote:
- quote -


Rich,

1. brain teasers on tax week - very cruel

2. WHY???

3. I think the best you can do is come up with a defensible estimation
method. It's similar to the problem of duration in a mortgage bond
portfolio, which depends on future-unknowns as well. Here's how Vanguard
describes how they do it:
http://flagship5.vanguard.com/VGApp/...FundIntExt=INT
I think they need to wordsmith that page. They say

"real" (i.e. before inflation)

when the rest of the world uses "real" to mean after-inflation. Maybe
they don't know how to do it either!?

-Tad

Rich Carreiro wrote:
- quote -

I think that's what they do. If you look at the yields for the starred
rows, which are the inflation-indexed bonds, they're around 2%.

http://wwws.publicdebt.treas.gov/AI/OFNtebnd

(and I mean TIPS, not iBonds)

Anyone know how the YTM calculation is done for TIPS? I know how to
do it for normal bonds, but there the semi-annual interest payments
and the principal payment at maturity are know and fixed. With TIPS,
both the coupon payments and the principal payment become variable
and become unknown.

Now, if one assumed a set inflation rate for the remaining life of
the TIPS, one could compute the YTM. Is that what brokers/bond quotation
services do? If so, what inflation rate do they assume? (I suppose
they could just assume 0%, so that the resulting YTM, which could then
be computed via the standard algorithm, would be a real YTM instead
of a nominal one).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us