IRD Determination G3: Yield to Maturity Method for Bonds (worked example)

[Snoopy]

[All] Bonds are Financial Arrangements but not All Financial Arrangements are Bonds:

If you do a word search on Determination G3 you will not find the word Bond or the word Interest, so amongst the many possibilities this 'Financial Arrangement' between B (the buyer) and S (the seller) could be:

A five year loan with an initial value of $1.5m with 10 semi-yearly payments of $70,000 and a final repayment of $1m that B bought off A;

A unique loan which B & S entered into where the initial value is that $1,012,500 and the repayments are as specified;

The 'Bond' that Snoopy has assumed which B bought from A.

The history of, and precise type of this arrangement is irrelevant, from 12 Mar 1987 to the end on 15 Nov 1988 they all have identical profiles

I have hit the pause button here. All of what the Snow Leopard has written above is correct. And yes I did assume our buyer B, bought the 'bond' (if it was a bond) off an earlier buyer A. But as the Snow Leopard says, the exact history of the story of this 'bond' is irrelevant, provided we know the starting conditions, the ending conditions and the interest payments for the bond (if I am allowed to call it that) for the duration of the investment in question.

and G3 shows how to correctly calculate the income and make adjustments to the outstanding principal for tax purposes for the periods between payments.

I would argue it doesn't show the method used, as the author writes in rather ambiguous terms.
"It will be found that the constant annual rate R is 16.2308% per annum"

I went to my front door mat today, lifted it up, and didn't find anything. So if that isn't proof the IRD is not telling the full story, I don't know what is!

SNOOPY