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The index yield to maturity (YTM) can be calculated either by weighting the average yield of the constituents by value weights or by duration weights. The yield to maturity is equivalent to the internal rate of return (IRR) more commonly used in unlisted equity. It is a forward looking measure of expected returns amongst the index constituents. It can be computed as a simple weighted average of the constituents' yield to maturities or weighted by both value and duration.

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LaTeX Math Inline
bodyV_{i,t}
 denotes constituent i's estimate of fair value at time t.
LaTeX Math Inline
bodyY_{i,t}
 denotes the yield to maturity for Yield-to-Maturity (IRR) for the constituent i at time t and is computed as an average discount rate for the asset over the full term structure which is used to compute the price of the asset

LaTeX Math Block
\text{Y}_{t} = EP_{t} + \frac{\sum \limits_{i=1}^n r_{t,t+i}}{n}

where,

LaTeX Math Inline
body--uriencoded--EP_%7Bt%7D
 is the estimated equity premium for the constituent at time t, based on the Asset Pricing model

LaTeX Math Inline
body--uriencoded--r_%7Bt,t+i%7D
 is the interest rate at time t with maturity i, used to discount the cash flow at time t+i. In other words, this represents the term structure of interest rates used for discounting the future cash flows of the constituent.

Duration-weighted

The duration-weighted YTM of the index gives a better approximation of the true yield of the index if the durations of the individual index constituents are very different from one another.

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