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Yield Approximations: A Historical Perspective

Authors

  • GABRIEL A. HAWAWINI,

  • ASHOK VORA

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    • Baruch College, and the European Institute of Business Administration (INSEAD), France; and Baruch College of the City University of New York, respectively. The authors would like to thank Richard Brief, New York University, for helping them discover the history of yield approximations.

ABSTRACT

This paper traces the historical developments of the efforts to find simple and accurate methods of approximating an annuity's implicit yield and a bond's yield to maturity. It is shown that the little known history of yield approximations is nevertheless very rich, with contributions dating as far back as the late seventeenth century. It is also shown that the standard textbook approximation formula for the bond's yield to maturity is the least accurate of a large family of formulas, some of which were suggested as early as 1855.

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